When people hear about the ROBS strategy—using retirement funds to buy a business—their first reaction is often the same: “You can really do that?”
I can relate, because I once had the same thought.
After working for many years in the retirement plan and ROBS space, I made the decision to purchase the business I had been running. Even though I’d been through the ROBS process with hundreds of clients as an advisor, using ROBS as a funding strategy for my business gave me a unique perspective.
Based on my experience—both personally and professionally—there are four essential factors for using ROBS strategically and effectively.
1. Start With the Business Plan, Not the Retirement Account
In my case, the decision to buy the business came first. The ROBS structure followed.
It’s tempting to begin with the size of a retirement account and ask, “What can I afford?” The more strategic place to start is whether the business makes sense on its own merits.
Before using ROBS funding, I focused heavily on:
– Business valuation and purchase price discipline, making sure not to overpay for the business
– Cash flow projections including assessing the ability of the business to support payroll, reinvestment, and growth
– A clear transition and operating plan
ROBS works best when it funds a sound business decision—not when it is used to justify one.
2. Preserve Personal Credit and Financial Flexibility
One of the practical advantages of using ROBS—something I appreciated firsthand—is that it does not rely on personal guarantees.
Preserving personal credit matters more than many new owners realize. Even if a business is well-capitalized at closing, there will almost always be future funding needs:
– Working capital
– Equipment or technology purchases
– Short-term liquidity during growth periods
Using ROBS allowed me to keep potential borrowing options open making debt a strategic choice rather than a requirement.
3. Avoid Over-Concentrating Retirement Assets
Just because you can roll over all available retirement funds does not mean you should.
When I evaluated my own transaction, risk balance was a key consideration. Retirement funds invested in a closely held business are illiquid and concentrated by nature.
Thoughtful ROBS planning often includes:
– Using only a portion of available retirement assets
– Leaving remaining retirement funds diversified
– Maintaining cash reserves outside the business
This is simply portfolio theory applied to entrepreneurship. The goal is to buy a business and protect long-term financial security at the same time.
4. Understand the Owner’s Role and Ongoing Responsibilities
Going through a ROBS personally reinforced an important truth: this is not a passive strategy.
The owner must be actively involved in the business and operate as a bona fide employee. In practice, that means:
– Material participation in daily operations
– Paying yourself a reasonable salary
– Understanding ongoing retirement plan responsibilities, including annual filings and compliance
ROBS works best for owners who are building and running a business—not as a hands-off investment.
Using the ROBS strategy to purchase the business I led as CEO, gave me a deeper appreciation for both the opportunity and the responsibility that comes with this funding strategy.
When structured properly, ROBS can reduce reliance on debt, preserve flexibility, and align ownership with long-term retirement goals. And, it works best when paired with discipline, planning, and ongoing compliance support.
If you’re thinking about buying or starting a business learn more about ROBS, or download our fact sheet.