Fantastic question.

I think business ownership is one of the best things a person can do.

I see two sides to your question

** Side 1 **

Q: Is buying a business a good investment?
A: It depends (of course!) on the business and the details of the scenario. Note that not all good business models will be able to survive the current and future onslaught of government intervention in the marketplace in the U.S.

** Side 2 **

Q: When I buy a business, should I use my retirement funds?
A: It depends. But more often then not, I think “no.” First, direct ownership of a pass through entity will create UBIT (see this post). Second, I’m a fan of raising money from investors.

Why raise money from investors?

1) It forces you to clearly communicate why your business plan will be successful, which is something you might not do to yourself if you did the deal alone.

2) You get feedback from others about your business plan. If any others participate, you can draw on their expertise. And when you do draw on their expertise, they want to give it because they have a vested interest.

3) You reduce your financial risk.

4) You share your potential reward with others.

I am interested in your thoughts on using your retirement funds to buy an established business. I understand that starting a new business – even a new location for an established franchise – is risky. But what about purchasing an established business (a business, not a job) with 7-10 years of strong positive cash flow and earnings? Would you still be against using your retirement fund for such a purchase?

Thanks.

Thank you for your thoughtful feedback. I apreciate you taking the time to put your post in perspective and respond to my comment.