Investing In A Franchise
Franchises offer the entrepreneurial-minded investor the chance to start a business without some of the headaches. With a franchise, your brand is known and your marketing is provided for you. Essentially, opening a franchise is like joining a team that already has a proven track record. The prior success of the team is not an absolute guarantee on the success of individual franchises, however.
The success of a franchise depends upon the location of the franchise and the staffing of it. A inattentive owner can run a franchise into the ground (no matter the success of the brand as a whole) just as he or she could run any other start-up business into the ground. The parent company will provide you with the tools, the training, and the marketing materials, but the successful day-to-day operation of a franchise must start from the ground up.
If you are considering opening up a franchise with funds from an IRA, there are a few things to look at first. You will need to be certain that you keep ample cash available within the IRA to pay all business expenses associated with the franchise. (This includes the franchise fee and every operational expense.) You should also realize that all profits from the franchise will go directly into the IRA so they will not be readily available to you, penalty-free, until you meet your IRA's requirements for penalty-free distributions.
Why a Self-Directed IRA Is Best for Franchises
A traditional custodian may see fit to charge you a transaction or management fee every time your IRA's franchise pays its light bill, its employees, or a plumber. Such excessive fee application can destroy your franchise's profit margins. With checkbook control of your self-directed IRA, you can pay all recurring (and non-recurring) expenses directly from your IRA without generating exorbitant amount of fees.
Written By Scott Janko, The National Association of Financial and Estate Planning (NAFEP)
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