Idea to Ownership: How to Fund Your Business

In this episode, Jon Bartos and Diane Rosenkrantz tackle one of the biggest questions holding future owners back: “How do I actually afford a business?”

The answer might surprise you. From overlooked funding paths to creative financing strategies, they reveal options that go far beyond traditional loans—many of which could put business ownership within reach sooner than you think. 

If you’ve been sitting on the sidelines, this conversation could be the push that turns possibility into action.

Stop taking a commission check. Start signing the paychecks.

Memorable Quotes:

 “Funding your new business is possible. Of all the people we work with, there’s almost no one we can’t finance to help them start their own business. My suggestion to everybody is take a look at your dreams, find out what you want to achieve. Don’t let financing be the thing that is stopping you from achieving your vision.” – Jon Bartos 

About

Diane Rosenkrantz has been working in the Finance and Consulting industry for over 25 years. She works with clients, brokers, lenders, and franchises throughout the county with the goal of providing the best funding option(s). Her specialty, as a Senior Consultant with Tenet Financial Group, is educating and helping clients on the ROBS (Rollover as a Business Start Up) option of accessing pre-tax retirement funds for a new or existing business.

Her experiences with Mass Mutual Life Insurance in the Pension Department provided an excellent foundation for her knowledge of 401K and Profit Sharing Plans. Diane worked with their Sensitive Plan’s division and led her teams’ efforts in Plan administration, compliance, training, and customer service.

Other positions held over the years include: Senior Account Executive in the publications industry and Senior Project Manager for a consulting firm that specialized in project management and customized software development in the health care industry.

Diane has been a senior consultant with Tenet Financial Group since 2009. She has been training clients, franchise brokers and loan brokers on the ROBS Option for years and has been published in many leading magazines.

Visit the Tenet Financial Group website

Connect with Diane on LinkedIn

Call or text Diane: (413) 354-4662

Email: Diane@tenetfinancialgroup.com

About Jon Bartos

"Starting my own search firm in 1999 was both the most challenging and rewarding decision of my career. It gave me the freedom to build a business on my own terms, while still being present for my family, a balance that changed my life.

 Today, as CEO of Dimensional Search, I’m proud to lead a platform that empowers entrepreneurs to experience that same freedom and success. With global resources, proven systems, and a network of like-minded owners, we provide the support you need to build, grow, and scale a thriving search firm."

 — Jon Bartos, Chief Executive Officer, Dimensional Search
Chief Investment Officer, Starfish Partners
Senior Partner, Sanford Rose Associates
Senior Partner, Next Level Exchange

Connect with Jon on LinkedIn

Follow $ales to CEO on LinkedIn

Transcript

SPEAKER_01 0:11

Your raymaker, the business founder. Stop taking a commission check. Start signing the paycheck. This is sales to CEO. Here's your host, John Buttertoes.

SPEAKER_02 0:29

All right. Are you a successful sales professional tired of building someone else's dream? Are you ready to use those unique skills, your drive, your network, your ability to close, to build your nest egg you desire by starting and growing your own empire? Well, no matter where you are in your sales career, there is opportunity for you, either a side hustle or full-time, to achieve your vision by owning your own business. Well, welcome everybody to Sales to CEO. I'm your host, John Bartez. Now, as most of you know by now, this is a podcast where we guide you from top-tier rainmaker to business founder. We'll cover everything from startups to franchising. And today we're covering financing your launch, which is the most important podcast we've done to date. Also leveraging your own sales network for massive success, but finally building wealth and equity for yourself, not your current employer. And along the way, we will bring a guest to give you insight to help you along that journey. So is it time to stop taking a commission check and start signing paychecks? Get ready to flip the script. This is sales to CEO. I want to let everybody know this podcast that we're doing today is extremely important because four years ago, I didn't know what I knew today. I can honestly say that almost everybody can finance their dream to owning their own business. And I'm excited today because we're going to talk about the top 10 ways that people are funding their startup. But more importantly, we're going to talk also about very specific sites to go to to help you fund this thing, fund that dream, that vision you have for you and your family. And then we're going to talk about the number one tool right now that 80% of the people are using to finance the dream of owning their own firm. And before I do that, let me jump on our guest, special guest. We have Diane Rosen, uh Diane Rosencrantz, who's a senior consultant with Tenant Financial Group. Ladies and gentlemen, Diane has been helping people finance their new business for over 17 years. And she has a desire to help people put a plan together to make that vision a reality. Welcome to Sales to CEO, Diane.

SPEAKER_00 2:42

Well, thank you very much. It's a pleasure to be here and look forward to uh connecting and learning more about how we can help people.

SPEAKER_02 2:50

Yeah, I love it. I love it. And obviously, this podcast is for sales professionals wanting to start their own business. Start off telling us your story. How did you get into the business of helping people finance their dream?

SPEAKER_00 3:03

All right. Well, my background was with big corporations. I was at Mass Mutual, Connecticut General, Cygna. I did a lot of project management work, a lot of work in the pension and 401k industry. And then probably close to 30 years ago, got involved with people that were in the franchise network, people that wanted to buy their own business. My family was in a family-owned business for many, many decades. So one thing led to another, and with my funding background, connecting with tenant financial group, and literally speeding from there and helping people all across the country.

SPEAKER_02 3:42

All right.

SPEAKER_00 3:49

With regard to cold hard lending, it is more difficult today. The strings are being pulled, things are being more tighter, tighter, things are being looked at more critically. So whereas years ago, when people did a signature loan, you just indicated that you had a job or you had a house, you you would just ask them for the amount and your check was written. Things have really changed. In 08, they changed a lot, and even more recently, more changing. So that's why one of the options that we'll be talking about today has risen to the very top of funding. So it is for getting loans more difficult. For other options, more doors open.

SPEAKER_02 4:32

I love it. No, and that's why alternative means of financing, other than going to a bank, is so important right now. You know, think about this. You have that vision of where you want to go, you have the skill set because you're a sales professional, you know business development, you know building accounts, you know the things and activity levels necessary for success. So you have the skill set. All we need to do now is put that financing together for you. And people are looking at alternate means of financing and not just going through a bank because it's almost impossible today, and then paying that interest charges that banks charge today. I mean, has anybody got a credit card lately to see what those rates are? It's highway robbery. I mean, the only people making the money are the banks today, which is crazy. Let's jump into, and I'm I want to quickly go through these, ladies and gentlemen, because I want to spend a lot of time on the ROBS program, which is what Diane and I are seeing 80% of the people having the ability to fund their own business with. I want to spend more time on that than these. But Diane, uh, let's talk about these. First of all, personal financing, which is very common, involving your own savings, home equity, personal lines of credit, some of the advantages. You're 100% owner uh in control, no debt, uh, disadvantages, all the risk is you as well. What percentage of people, Diana, are you seeing bootstrapping using their own financing to start their own business?

SPEAKER_00 5:51

Probably about 15%. 15 to 20 percent of the people are are literally using their own money um and think that they could do it quickly and maybe they've gotten abundance. Um, but of course, some people also want to do something above and beyond that or might not have enough. But some people use some of their own money.

SPEAKER_02 6:13

Yeah, and I think if you look at that, uh to have enough money, because most people think, no, I gotta fund the business, that I gotta fund my lifestyle, it's gonna take me six months to get the business off the ground. And if depending on somebody's lifestyle, that six months could be a big, big, big number. And and it could be in the several hundreds of thousands of dollars at that point. So not everybody has that. So I certainly understand that. Let's jump onto the next one. Now, when I got my started my first business in uh 1998, I looked at all funding methods and it just took forever. One of the methods was an SBA loan. And you know, the good new, you know, banks love the proven model of a SBA loan, but low interest rates, longer payment terms, but extremely paperwork intensive and slow. What are you seeing now for SBA loans, Diane? What how tough it is to get those and what times it takes to get them?

SPEAKER_00 7:03

Well, it depends whether it's for a brick and mortar location or a service-based business. The timing has been extended. Absolutely. The rate right now is 9.5% for SBA. That still means the person is putting in cash injection. So it's a lengthy process, it's arduous, there is a lot of paperwork. Can it be done? For some people, some people want more instant funding, and therefore that might be a challenge.

SPEAKER_02 7:33

Yeah, and and um I just got off uh the phone uh last week with a friend of mine who had a commercial loan, SBA funding. He was in a partnership. The partner went bankrupt. They had to sell the save uh sell the building at a loss, and he looked at a million-dollar shortcoming. Uh and unfortunately, that million dollars is gonna stay with him the rest of his life. The SBA will be taking that money out of his social security checks until he's gone. That's the thing with SBA as well, is there's some hooks in there that you can never get away if something bad happens, unless you uh unfortunately declare bankruptcy, is what I understand. Do you know anything about that, Diane, or or no?

SPEAKER_00 8:16

Well, depending on the size of the loan, sometimes they do need collateral. And if you don't repay the loan, then certainly you would be filing for bankruptcy. Uh, but yeah, the bank wants their money back. If if you took out a loan, they'll get they'll they'll want their money back.

SPEAKER_02 8:32

No, there's no question about it. Now, uh, family and friends, we see a lot of folks using family and friends for seed funding, you know, startup seed stage. Uh the advantages for obviously, you know, family and friends is flexible repayment terms, lower interest rates. Disadvantages, though, uh, for that is you can root a personal relationship if things don't go exactly the way you saw uh or envisioned, but also if somebody needs their money back and you don't like you can't pay it back at the time, the relationship is gone. And that could certainly make for some tough holiday dinners. Any thoughts on is there many people doing family and friends? Uh, what are you seeing out there, Diane?

SPEAKER_00 9:12

Uh, very few would go to a friend. That would be a really last resort because that's a certain way to end that friendship. If a person is younger and they're relying on a parent or grandparent potentially, for smaller funding, possibly, but it um a lot of people do not have that option or it's not feasible. So it's um it's a very small percentage of people that are actually getting a business because they were given or lent money.

SPEAKER_02 9:39

For sure. Um, and then I want to put two in one category, which is angel investors, affluent individuals, often entrepreneurs who provide capital in exchange for equity. Uh, same thing with a VC firm, you know, professional firms that manage pooled money for many investors, but you still have the same advantages but same disadvantages. Uh, you know, some of these, some of these organizations and angel investors want the majority of your company. So they'll loan you some money, but unfortunately, not only do you got to pay the money back, but they own a big percentage as it goes. And I would think getting an angel invest venture uh angel investor or a venture firm interested in in your company, that's gotta be one of the most difficult things in the world, wouldn't you think, Diane?

SPEAKER_00 10:24

Yeah, it probably would be very difficult. It would fall into a tiny percentage of businesses that people listening would likely get involved with. And um, it it'd be it'd be a tricky process and uh not too common in the small business ownership.

SPEAKER_02 10:41

Yeah, I would think so. And then um there's obviously websites to go to, and I'm gonna throw these out there because this is about financing your own business, and I'm just gonna mention some websites. So the the Angel and VC networks, where do you want to go? Well, these platforms I'm gonna share with you are kind of the gold standard for high-growth startups and tech-enabled businesses. They often require a solid pitch deck. So you've got to have your stuff together and some initial traction. There's virtually none of these things will look at an idea on a paper like they used to do in the year 1999-2000. You can think of an internet idea, put it on a napkin, and somebody funds you for three minutes. That doesn't happen anymore. You've got to not only have the business running, it's got to show traction, meaning that you're seeing some success quarter over quarter. And then some of these will look at you. But just keep some of the sites that are out there is Angel List, which is really the most dominant platform for startup fundraising. Create a profile, apply to syndicates or groups of investors led by an experienced lead. So it's not Angels List is good. Gust G U S T. This is the back-end software used for over 800 investors, angel investor networks globally. Angel Partners is the neck one next one. So these three Angels List, GUS, and Angel Partners are really good if you are at that stage, need more capital to keep growing. But the demand for Angel List, Gust, and Angel Partners is ever great than it's ever been. Don't forget what we just went through. As the interest rates started rising, all the angel investors asked all the BNC firms to slow their burn rates because they didn't have the money to keep investing at the ridiculous rates that the Fed had. So getting money, there's such a high demand and low supply for these things. Now, number two is the crowdfunding, you know, raising from the crowd. We got We, and here's the websites, ladies and gentlemen. WeFunder, the largest platform for regulation crowdfunding. It's WeFunding, is really what We Founder. Let me spell it for you. W-E-F-U-N-D-E-R, WeFunder. It's great for founders who want to stay independent while letting their customers own a piece of the company. Second site in a kind of an equity crowdfunding area is Start Engine, top-tiered platform for equity crowdfunding. They provide significant marketing support for selective companies, but only fairly, very, very few companies do they select. And the next one is Republic, which is a highly vetted site, except less than 3% of startups that apply. Being listed on Republic is seen as a major stamp of approval if you get that approval to go forward. So you've got heavy hitters on the angel and VC list, you've got equity crowdfunding, then you got specialized relationship-based networks. And these are like U.S. Angel Investment Network, which is over 400,000 angel registered investors. You got OpenVC, which is a newer transparent platform that maps out VC networks, and then you got Seed Invest. So I'm going to put this document someplace you can get it next to the podcast. You could just jump on these website links and check them out. But well, here's what I want to change this to since Diane, I have the expert for this here. 80% of the funding, and I want to share this with everybody right now. If you are thinking about starting your own business and becoming your own CEO, the number one choice is using your own money in your 401k or IRA. And that's what with the what we call Robb's funding option. So let me bring it over to Diane. Help us a little bit. What is this 401k rollover business startup Robbs thing? Tell us the program. What's it all about? Why is it so popular? Just jump on that to explain to my audience how they can do this if they have a 401k or IRA.

SPEAKER_00 14:26

Sure, absolutely. So it stands for rollover as a business startup, but it literally is for any for-profit business. So anyone that has a retirement account that's never been taxed, and it goes beyond a regular IRA, a SEP IRA, a rollover IRA, a 401k, a 403B, a 457, could be an annuity, could have been a pension. Any retirement account that's never been taxed can be used as long as it's not from your current employer. So you've rolled over money from an old job to your new job, that's okay because the initial money was rolled over and from a prior job. An IRA that's never been taxed is also fair game. A person can use any portion of that retirement account penalty free and without getting an early, without an early withdrawal penalty and without a taxable distribution. So even if they are 40 or 50 or 55, they will not get hit with the early withdrawal penalty, and it is not a taxable distribution. Whether you've rolled over $100,000, $500,000, or a million dollars, those funds can then be used for any business expenses and even for salary. And it is literally the top way people are funding small businesses or franchises today.

SPEAKER_02 16:09

All right, let's talk about that. So I first is it a government-backed program?

SPEAKER_00 16:14

Well, it is sanctioned from the IRS, but it is not a government program at all. It has been around and allowed since 1974. For over 40 years, this has been a viable option, but so many people might not have known about it until the past 10, 15, 20 years.

SPEAKER_02 16:36

I love it. I love it. So I have a million, let's say I have a million dollars in my 401k. I just got laid off. Uh, the company went bankrupt. They got bought out by somebody and they kept the team from the rest company and not me. Uh, and I was their VP of sales. How much of that million dollars in my 401k can I tap into? Now I'm not at the company anymore, so I can get access to it. What can I use out of that to fund my startup?

SPEAKER_00 17:02

As much as you want. You can literally roll the entire million dollars over or any portion of it. It would be directly moved into a brand new 401k plan. Our company would create the corporation, we'd create the 401k plan, we'd help with the money movement. So literally, when that money moved over to the new 401, dollar for dollar or whatever portion, it's never been taxed. It's never gotten hit with any penalties or withdrawal amounts because you're actually investing in your very own company and there will be shares of stock issued, which is why you're not hit with the taxes and penalties. You're investing in your very own company, and it is just a beautiful thing for people without debt. You're gonna get to break even quicker, profitability quicker. Why? There is no interest rate, there's no payback schedule. You've just invested in your very own company.

SPEAKER_02 18:08

Oh, I love it. I love it. All right, so so if you if you think about that, all right, so the 401k Robbs program, let's dig deeper. So, so by the way, if you're looking at starting your own business and looking at financing your own business, this is one of your first options you need to be looking at right now, specifically if you have money put away in your 401k. A lot of people are looking at this as I don't need that money right now because I'm not retiring right now, but I do have an asset that I can use and they can bring it forward. And um, I would look at from a visualization perspective, because some people think, oh, I can't take money from my 401, it's simply an asset like your house. And you're taking money from that asset to fund another asset. And most of you have to realize that your business will be an asset as well. This new business, when you start it and it starts being successful, is a value. It's a huge value. And sometimes, if you have the ads specifically here on XM radio today, you can sell your business for sometimes 10 to 15 times EBDA, depending on what kind of business it is. So it is a real asset that we need to think of. So what we're really doing is taking it from our 401k, an asset from there, and just converting that asset to our business. Now, Diane, let's jump into some of the details on this 401k Robb's program. What are the stipulations that we must adhere to?

SPEAKER_00 19:30

Okay, great question. So the key is that it is only for funds that have never been taxed. So if a person had a Roth IRA and a regular IRA, the regular IRA, traditional IRA can be used. A person would be interested in the ROBS if they were going to invest in their business $50,000 or more, which I'm sure would be, you know, a minimal number for many people. So whether you're rolling over $60,000 or $100,000 or $800,000, it's going to be worthwhile because you're not hit with the taxes and penalties. In your example, you said they just left corporate America. They've left their position, there's no income W-2 checks coming in. You're able to pay yourself a paycheck through the ROBS option. When that money goes into your company bank account, you are an employee, a W-2 employee from day number one. And you're able to pay other employees or other family members working for your new business as well. And you're going to be able to contribute to a new 401k plan to start to grow those funds at whatever level or whatever path of frequency you want, whether you're deferring 1% or 4% or 15% of your paycheck, money goes back into that 401k created for that new corporation.

SPEAKER_02 20:57

And I know there's some stipulations about what kind of a corporation or entity setup you need to be. Can you walk us through that?

SPEAKER_00 21:05

Exactly. The IRS will only allow it to be a C corporation. And a C corporation was the most common and the original entity set up, which is why it goes by the nickname C for corporation. So if a person didn't designate their LLC or their S-corp and just wanted the entity, it would have been a C corp. And so with regard to that, it is a C corporation that we would create. It is taxed as a C corporation, and the individual is an employee of their corporation, which is a for profit business.

SPEAKER_02 21:44

So so let's d just so everybody's clear on this, the 401k really owns your business, correct? Is that how we look at this?

SPEAKER_00 21:53

Well, that's a that's an excellent point. So because the funding primarily goes through the 401k The 401k does own a large percent of the corporation at the beginning. But the IRS is going to want to make sure that you personally own some of those shares of stock. And we recommend that the client should own 5% of the shares of stock to show they've got a vested interest. But in that scenario, the 401k plan of the corporation does own generally 95% of the shares of stock.

SPEAKER_02 22:32

Okay, as the business gets bigger and bigger and bigger, does that ever change? Do they want to change from a C corporation to something else when they don't need the 401k financing and sol profitability? What do you see happening going forward once the growth happens?

SPEAKER_00 22:47

All right, perfect scenario. As that business is growing and more and more money is going into the company bank account from their sales and their revenue, you're absolutely able to reverse the process. Money from the corporate bank account can buy back shares of stock. So, in that example, when you might have started out as a 5% owner, you could be buying back another 20%, another 20%, another 40%. And over time, you've literally put back money pre-tax into the 401k and you now own 50 or 80 or 100% of the shares of stock of your company. And if you do reverse the process and your accountants suggest that you change the entity structure, you do not have to be a C Corp if the 401k doesn't own shares of stock.

SPEAKER_02 23:44

Got it. Got it. All right. And so let's talk about process. Because I know getting an SBA loan takes an act of God and forever. So how long if I have a 401k and I'm no longer employed by who I had the 401k by? What's the process? Just take us through the process.

SPEAKER_00 24:03

All right. We would set up the corporation, most likely in the state that you live in. We'll get the articles of incorporation, all your tax ID numbers. Our team is then going to help you set up that new 401k custodial account and the movement of the money and the forms from the day they start on average, based on most states, based on the assumption that the funds are in an account that will move at a normal speed. Approximately four weeks from the day you start, the money will be liquid and available in the bank of your choice, ready for you to wire or write a check for your new business venture.

SPEAKER_02 24:44

Yeah, no, I love it. And so if you look at that, talk to me about cost. What costs are they looking at to start a 401k Robs program? You know, Ross.

SPEAKER_00 24:54

Okay. So for everything that is involved and all of our services, the one-time upfront cost, which goes towards your ownership of stock, is $4,995, $4995, the one-time upfront cost. Our company at Tenant Financial Group does all the required administration, record keeping, maintenance, tax reporting, IRS filing for the $401. That is a monthly amount. It is $145 for the plan, not per person. So that is the ongoing monthly administration as long as the $401 exists and it owns stock of the company.

SPEAKER_02 25:42

Love it. Love it. So so when do you suggest somebody's looking at starting their own firm and they've got to look at financing because that's realistically, that's what's going to determine their time frame of actually making this happen. When that should they start talking to you?

SPEAKER_00 25:59

Well, when they might be, let's say, 60 or 70% sure that they want to do something. They may or may not know exactly what they want to do, but that's probably when they want to learn a little bit more, see if their state is one of the quicker states, verify where the funds are. And, you know, a person does not wait till they're 100% sure and they're about to hit the ground running tomorrow. You want to have backed up and learned about this and gotten key questions answered a little bit in advance, I would suggest.

SPEAKER_02 26:35

Yeah, yeah. So uh, Diane, I certainly appreciate everything you've shared so far because I think most people don't realize that if they do have these funds out there, they can tap them to start their new business. Now, quick question before we end the segment here is what if they have an existing business and need access to funding? Is there any way that can happen?

SPEAKER_00 26:56

Absolutely. So this is allowed to be also a recapitalization. So you've got an existing business, you don't want to take out a loan, you don't want more debt, and you said, wow, I forgot I had my IRA there or that old 401k. Those could be used to recapitalize the business that exists, to inject the money for any expenses or debt as well as salary. It if it's not a C corporation, it could be converted to a C corp so the recapitalization can take place.

SPEAKER_02 27:30

Oh, I love it. Absolutely love it. So, ladies and gentlemen, what we're saying is not only can you have a startup and fund your startup with this, your existing firm as well. Well, Diane, how can how can somebody get a hold of you? What's the best way to get a hold of you?

SPEAKER_00 27:44

Okay, uh, my phone, uh, which is by text or calling 413 354662. Or my first name, Diane D-I-A-N-E at tenantfinancialgroup.com. And I'll just spell tenant T-E-N-E-T. So that's a great way to reach me any time of the day by email. Diane at tenantfinancialgroup.com.

SPEAKER_02 28:19

Yeah, and I would strongly suggest everybody who's looking at potentially starting their business, if we're getting close to it and you think you may want to do this, reach out to Diane. Diane has worked with our clients at Dimensional Search uh for years and does just an incredible job taking them through a process and helping them fund their new business. So I'd strongly suggest you do it. So thank you, Diane, for all you do. Keep up the great work, and certainly thanks for being on being on sales to CEO. Greatly appreciate it.

SPEAKER_00 28:49

My pleasure. Thank you for having me today.

SPEAKER_02 28:51

You betcha. So, ladies and gentlemen, if you think about that, funding your new business is possible. All you and I'm gonna say, of all the people we work with, there's almost nobody we can't finance to help them start their own business. So my suggestion to everybody is take a look at your dreams, find out what you want to achieve, don't let financing be the thing that's stopping you from achieving your vision. I'm John Bartos, Sales to CEO, and I'll see you next time. Good luck and good selling.

SPEAKER_01 29:22

Thank you for joining us for another episode of the Sales to CEO Podcast. If you enjoyed the conversation, please share the episode with other new entrepreneurs, leave us a positive review, and subscribe to Sales to CEO on Apple Podcasts or wherever you listen to podcasts. Sales to CEO is hosted by John Bartos, produced by Erin Bartos, and managed by Laura Novak. We're happy to support your journey as you start building your own business.