How to Make a Successful Affiliate Website (Step-By-Step)

Your Step-By-Step Guide to Turning a Newly Purchased Website into a Money Making Machine

Affiliate marketing isn’t as easy as the experts make it seem.

Sure, it would be nice if we could all buy an established website and trade in our full-time job for Mai-Tai’s on the beach.

Affiliate marketer on the beach

Image credit: http://gph.is/Zeq0fl

But an early retirement requires work.

Today, we’re going to talk about how to earn those Mai Tais. We’re going to talk about how to convert your affiliate website into a passive income machine with the help of search engine optimization (SEO).

We’ll delve into evaluating the most valuable pages on your website, analyzing the competition, and finding a profitable niche to target. We’ll then talk through capitalizing on your top SEO opportunities,  stealing the success of your top competitors, and scaling the most impactful initiatives to maximize your results.


Why SEO Matters

“SEO seems like an arbitrary place to start.” You might be thinking. “Why not focus on social media or YouTube instead?”

Data on the ROI of SEO

2018 study conducted by SparkToro shows that Google drives 10x more referral traffic to the average website than Facebook.

In an ideal world, you would be focusing on SEO, social media, and every other marketing channel out there. That being said, we believe in putting the most emphasis on the initiatives that drive the best results.

With that in mind, we’re not going to delve into using email marketing or a massive social media following to drive affiliate commission. Instead, we’re going to talk about how the most successful affiliate marketers build those massive email lists through SEO-centric blogging.


Assess the SEO Value of the Site

The first step after buying an established domain name is to look under the hood and see what you have to work with.

We break this down by asking three questions:

  1. Which pages hold valuable keyword rankings?
  2. Which pages have the most meaningful websites linking to them?
  3. Which pages drive the most organic traffic?

As we search for those answers, we note our current standings and identify how this stacks up to competing websites in our industry.

1. What Keywords Do You Rank for?

Our team uses SEMRush for this process. However, any keyword research tool will work.

Plug the site into your keyword research tool. Look at the top keywords that your website ranks for.

Competitor analysis for an affiliate website

Does one page hold 80% of these keyword rankings, or are rankings spread out evenly across the site?

Notate your top 10-20 keywords, as well as any keywords that you rank in positions 11-20. Highlight keywords that have a high search volume or a strong commercial intent.

Keywords that you rank in the top 10 positions for drive value to your site today. Keywords that you rank in position 11-20 for will be the easiest keyword ranking wins to focus on first.

2. Which Pages Have the Most Meaningful Websites Linking to Them?

Backlinks are the currency of the internet. Take 30 minutes to understand which pages on your website drive the most link value.

Use a tool like Ahrefs to sort your pages based on their link profile. Hover to “Best by links” and sort in descending order based on URL rating or root domain backlink count.

You should see something like this:

Top pages for a profitable affiliate website

Note the top pages that show up here. These pages have the most authority that can be passed to more meaningful pages on your website.

If you see that 50% of your links come from 3 different articles, ensure that those articles include a link to relevant, revenue-driving pages to enhance rankings of those pages.

3. Which pages drive the most organic traffic?

Google Analytics Screenshot

Now log into Google Analytics and review your site’s organic traffic.

Set the time range to view the last 12 months of data (if you have access to this data) and view “Landing Pages” within the “Behavior” tab.

Note the pages that have driven the most organic traffic to the site over the past 12 months.

You should see a strong overlap between the three and have a better understanding of your site’s current search value.

 


Evaluate the Competition

With a stronger understanding of your site, it’s time to see how you stack up against the competition.

Review your top 5-10 highest traffic-generating keywords. Search for each keyword and list the websites that appear above you in search results.

Now describe your website’s niche in 2-3 words.

Go to Google and type in the phrase “best [insert 2-3 word descriptor] blogs.”

Click on each of the search results that look like these:

List of popular affiliate websites

Open up each article and list out all of the websites that show up in these lists.

Take all of the websites in your list and plug them into Ahrefs. Write down their total count of referring domains and estimated organic traffic.

Successful affiliate website metrics

Add your site to the list to get a stronger sense of how you stack up against the competition.


Identify a Niche (and Revenue Model)

If you find yourself at the top of the list, you’ve found a great opportunity for a niche site. You can now focus on monetizing.

If you find yourself towards the bottom of the list, it might be time to think about finding a narrower niche that you can outrank the competition in.

Once you’ve solidified your niche, it’s time to start thinking about your revenue model.

There are pros and cons to each option, but the most common forms of monetization for authority websites are as follows:

  • AdSense (or similar display networks) – advertisers pay per impression or click that you generate to their site via display ads. AdSense provides minimal revenue per visitor, but can be an excellent source of affiliate income for sites with millions of monthly pageviews.
  • Sponsored Posts – offering others in your industry the opportunity to write full-length articles on your site as a form of advertising.
  • Affiliate Products – build relationships with advertisers and taking a commission for each customer or lead that you generate. For simplicity, start with an affiliate network like ShareASale, Commission Junction, or Amazon’s affiliate program. Matt Diggity made a list of the top affiliate networks here.
  • Ecommerce – sell your own products/services on the site, or drive visitors to another site that generates revenue.

If you struggle to find a revenue model that for your niche, search for a more profitable niche to target.


Optimize Top Pages

With your niche and revenue model at the front of your mind, it’s time to target the low-hanging fruit.

Revisit the top pages that you identified in step 1. What opportunities do you see to enhance the value of those pages?

  • The average first-page result on Google is 1,890 words. If your page is shorter than that, focus on expanding the contents of the page
  • Look at the pages that rank above you. What content do those pages include that your page lacks? Does it make sense for you to add sections about those same concepts to your page?

More SEO opportunities to scale these pages here.

Next, log into SEMRush and filter down your keyword rankings to show all keywords that you rank in positions 11-20 for (we also recommend filtering out keywords that receive <50 searches/month).

As mentioned above, these keywords will be the easiest opportunities to capitalize on.

The pages that rank for these keywords are on the cusp of seeing massive traffic gains. Expand these pages; improve their readability; link to these pages from other sections of your site.

Optimizations for building an affiliate website

Keep your revenue model at the front of your mind when prioritizing these updates. Some search queries will be more valuable than others. However, all queries that relate to your niche have the potential to drive revenue (more on how blogging drives revenue here).

After capitalizing on these top opportunities, it’s time to steal your competitors’ top search rankings.


Steal the Success of Your Competitors

Revisit your list of top competitors. Plug each of those competitors into SEMRush or Ahrefs and isolate each competitor’s top-performing pages.

Add those pages to a list and analyze each of those pages. Break down the length of the content and estimated search traffic that the page sees.

Now evaluate your site. Do you have a piece of content that relates to this overarching theme? If so, is your page more or less comprehensive than the top-ranking page?

The average first-page result on Google is 1,890 words. Scour your competitors for any top-performing pages that are <1,500 words and focus on creating higher-quality content.

(More on how we find and write top-performing content here).

Identify pages that you have an opportunity to enhance. Then identify new content ideas that make sense to add to your editorial calendar.

P.S. Download this sample template for evaluating competitor content.

Set aside time to promote each article that you write.

Link building is the most effective starting point for scaling long-term visibility. One of our favorite link building techniques is to pull a list of all the websites that are linking to similar content. From there, we start conversations with those publishers.

Build relationships and encourage them to link to your article as a helpful resource for their readers. Outside of that, here are a few simpler link building techniques to gain high-quality backlinks.


Scale What Worked

Take time every 1-2 months to identify the pages that see the most meaningful traction.

  • Review keyword rankings and organic traffic to see which pages gained the most visibility
  • Review on-page metrics like bounce rate and average session duration to see which pages kept your site visitors most engaged
  • Review goal completions and goal conversion rate to see which pages generated the most leads/customers

Look for trends in performance. Do how-to articles have a higher goal conversion rate than product reviews? Do image-heavy articles keep people on the site longer than articles without images?

Scale up what works as you learn more and more about your visitors.

Converting a newly purchased site into a successful affiliate site is hard work, but follow this framework and you’ll be well on your way to building an industry-leading website.

Interested in working with experts who do this on a regular basis? Learn about our content marketing services to see if we’re the right team to help you out.

Achieve Success Faster By Purchasing an Online Business

Achieve Success Faster By Purchasing an Online Business

Many entrepreneurs think that they will be able to launch their startup and find success within the first year. However, they are soon hit with the reality is that this almost never happens with an online business. 

In the majority of cases, it takes much longer than that to achieve any measurable success. In fact, in most cases, it can take as much as four years before seeing any kind of significant revenue. 

A lot of people do not want to have to wait this long to achieve success with their business. These people will either end up losing interest or funding long before they reach the one year mark. Luckily, there is a way to find success faster by doing one simple thing. By buying an already existing online business, entrepreneurs can help to jumpstart their startup success story by months or even years. 

Thriving Customer Base

Finding and retaining customers in the online marketplace is the third biggest challenge that online businesses reportedly face. Therefore, when they are able to start with an already present customer base, it makes the challenge much less daunting.

Thankfully, if an online business is up for sale, that means it will have already been in full operation for at least several months. During this time, it should have gathered quite a few new and loyal customers. In addition to customers, it should also have a developed email marketing list. The entrepreneurs will take possession of both of these once they purchase the site. 

Therefore they can focus a lot of their attention on things like improving products and altering the website layout. This saves them from having to spend a lot of time trying to entice new customers to visit the site. 

Developed Social Media Presence

Considering the fact that 75 percent of customers use social media as part of their purchasing process, it is incredibly important for online businesses to have a strong social media presence. However, in order to do so, they need to make a lot of social media posts on all major platforms. 

Developing fully fleshed-out Facebook, Instagram, Twitter, LinkedIn, and other accounts are something that takes at least several months to do but can often require years of effort. This can be easily circumvented by instead purchasing an online business that has already spent all of this time and effort creating engaging social media accounts. 

Depending on how long the online business was in operation for and how large it grew to be, it could have a total follower count upwards of 1,000 people. This is something that can help put the entrepreneur a lot closer to achieving success with the online business. 

Finding Successful Business Operation Tactics

When someone builds a company from the ground up, they’ll have no basis for what kind of tactics work. This is unless they have previously run an online business that is very similar to their current one. Having no frame of reference for successful business tactics will force them to do a lot of trial and error. 

This can often lead to a lot of time and money being put towards something that then ends up failing. It is during this process of trying to figure out what combination of tactics to use that an online business often runs into financial problems that lead to it closing its virtual doors. 

When you decide to buy an online business, a lot of the trial and error will have already been done for you. If the online business has grown to a point where you are interested in buying it, then it means that the combination of tactics that it is using must be at least mostly successful. 

Therefore, it is very likely that you may only need to apply small changes to maximize the business’s performance. This will end up saving you a ton of money and effort and help you achieve success a lot faster. With all of these great benefits, it is no surprise that so many entrepreneurs choose to buy an online business. To buy some of the best online businesses out there for some of the best prices, then visit Flippa today.

How to Hire the Best VAs: 5 Tips For Success

How to Hire the Best VAs: 5 Tips For Success

A VA should be one of the first hires you make as an entrepreneur, and is one of the most important. A motivated, skilled VA can take many of the most time-intensive tasks off your hands, and let you focus on the strategic direction of your business.

Hiring a VA can be a little tricky, however, particularly for entrepreneurs who are inexperienced when it comes to managing the recruitment process. In this guide, we’ll give you a simple process for making sure that you get it right first time.

Do You Need a VA?

First, though, let’s take a more detailed look at whether you need a VA. Spoiler alert: you probably do.

Image: MyTasker.com

If you’ve built your business yourself, it can be difficult to pass over responsibility for key tasks to someone else. The truth, though, is that you are probably doing a lot of tasks that you don’t need to be doing. Whether you are trying to leverage video marketing, or increase your Twitter following, you need to be aware that every task you do has an effective dollar value.

And if you are spending your time on tasks that are of low value to your business, your income is never going to rise.

The first step in hiring a VA is therefore to work out the actual dollar value of all of the tasks you do. Then you can take the lowest-paid tasks, and delegate them to your VA. This approach will also mean that you are sure to see an ROI for your new hire, because you know the exact value of the work they are doing.

Hiring a VA: The Five Steps To Success

Once you’ve decided to take the plunge, there are five steps to making sure you hire the best VA possible.

1. Document The Tasks You Want to Outsource

Once you’ve completed your audit of the tasks you do, you should have a really good idea of which tasks you are going to pass on to your new VA. This list of tasks forms the basis for the hiring process, so make sure that you spend the time to make it comprehensive.

From this list, you can then produce training materials to show your new VA how to complete their tasks, and create a handbook of Standard Operating Procedures (SOIs) for these tasks. To learn how to write effective Standard Operating Procedures, check out this guide.

2. Create a Detailed Job Description

From your task list, you’ll be able to get a good idea of the level of education you are looking for in a VA, and the specific skills they will require. Of particular importance is that they already know how to use all of the systems you use in your business.

You can then work up a Job Description for the VA role. This should include:

  • Background information about your business (your industry, what you sell, and who your clients/customers are)
  • Level of education, experience, and/or skills required
  • List of duties and responsibilities
  • List of any apps, tools, or software they will be using

The more detailed you can be in the job description, the better. Not only does this help you find the right VA for the job, but it also crystallizes your thinking – forcing you to ask, “Who or what, exactly, will this position require??

3. Advertise

The next step is to advertise your role. Though some entrepreneurs like to post jobs on Craigslist, in reality it pays to advertise your position as widely as possible. That way, you can be assured that the best qualified candidates will see it.

There are some sites that are used specifically to hire VAs, and they are a great place to start:

4. Schedule Interviews

Webinar, Conferencing, Video, Beverage, Call, Cam, ChatImage: Pixabay

Now we get to the most difficult part of any hiring process: finding the best candidate. After you’ve reviewed the applications you receive, you should immediately have a good idea of the 5 – 10 most qualified candidates for the role.

Schedule interviews with these candidates. Video calls are great for this, because you can quickly find out how easy it is to communicate with your candidates, and what it will be like to work with them.

You should definitely ask about their work experience and skills, but don’t stop there. It’s also important to ask candidates about their hobbies, how they like to work, and their values.

Conflicting values can quickly become a source of friction in a relationship, particularly when it comes to the value of security and privacy. As Will Ellis, Director of Research at security advocacy group Privacy Australia points out, “you need to ensure that all of your staff take your business as seriously as you do.”

With growing concerns over cybersecurity and data privacy, every VA you hire is a potential point of attack for would-be hackers through social engineering attacks. When conducting interviews, it’s important to filter out any candidates that have a cavalier attitude towards their own privacy, because they would carry that behavior into your business as well.

5. Trial Periods

Once you’ve identified the top candidate, you should hire them on a trial basis to begin with. Even if you are hiring them with the expectation that they will work with you for years, regular goal setting and performance management is the key to any successful business relationship.

This trial period can last for anything from one month to six months, and provides a chance for you to work out any issues with your new VA before you commit to a longer relationship. You should formalize this trial period in the contract you sign with your new VA, but also make the way that you will assess them open and transparent.

The Future

If you’ve followed these steps, you should be well on your way to having a great VA by your side. However, if the selection of real-life humans seems like simply too much for you right now, you should also have a look at AI Virtual Assistants: whilst AI solutions are not (yet) quite as good as humans, it might be that in a few years everyone has an AI assistant as well.

For now, though, hiring a VA is one of the most cost-effective decisions any entrepreneur can make. As long, that is, as they hire the right person.

 

Dan Fries is a freelance writer and full stack Rust developer. He looks for convergence in technology trends, with specific interests in cybersecurity, micro mobility, and smart cities. Dan enjoys snowboarding and is based in Hong Kong with his pet beagle, Teddy. His website is danfries.net.
6 email marketing automation tips for eCommerce businesses

6 email marketing automation tips for eCommerce businesses

Gloria Kopp is a ecommerce digital marketer at Academized. She is an editor at Studydemic blog for writers and international students. Gloria is a contributor at Collective Evolution, Template Monster and Big Assignments. Follow her on Twitter: @Gloria_Kopp


 

With the rise of social media, SEO and paid advertising strategies, it seems like many businesses are letting their email campaigns slip off to the wayside. However, if used effectively, it’s still one of the most popular and most effective forms of marketing you can invest in.

In fact, according to one study by MarketingSherpa, they found that 72% of customers preferred communicating via email, that’s way more than calls, texts, instant message and social media combined.

So, as an e-commerce business, what can you do to implement an email strategy into marketing efforts? If you’re scratching your head for ideas, here are six tried and tested email automations you can set up and starting today.

Start with a Welcome Email

When a customer signs up to your business by joining your mailing list, what’s the first thing they receive from you? Is it an email a couple of weeks later featuring offers or a newsletter? KissMetrics found that implementing a welcome email into your marketing strategy will boost your click-through rate and revenue three times more than any other email you’ll send.

So, using automated email clients like GetResponse or ReachMail, you can set up triggers so as soon as a lead signs up to your mailing list, they’ll receive a welcoming email from you saying welcome to your community and a bit of information about your business and what they can do next.

Making Sure Everything is Okay

Following up the sales that you’ve made is a great way to improve the overall e-commerce experience that you’re offering your customers. It shows that you care about the service that you’ve provided them and that you simply haven’t taken their money and disappeared.

By using services like Litmus, you can send timed emails a few days from when the purchase is made to make sure that everything is okay, adding contact links and asking to get in touch if they have any problems. If you don’t have time to create these emails yourself, you can use email copywriting services such as UK Writings, as suggested by UK Top Writers.

The Importance of Upselling

Upselling has long been a successful marketing tactic used by businesses all over the world. With this process, you simply send out an email which details related products to the ones that certain customers have already been looking at or offers in regard to the products they are interested in.

This can be done with most email automation clients and can significantly boost your turnover and revenue, as well as increasing the chances of repeat purchases if implemented properly. As you can imagine, this is a lot of emails to create. To help you with this process, it can be beneficial to use free online tools like Easy Word Count or Cite It In.

Cart Abandonment Prompts

How many times do you see that a lead has added products to their basket and are just a few clicks away from making a purchase before they change their mind and leave your store? This could happen for a number of reasons from having simply no time to finish their purchase to changing their minds about what they’re buying.

However, using email automation, you can set up triggers that send off an email to your customer to remind them that they still have items in their cart waiting for them to buy, helping you claw back those all-important sales.

When generating these emails, be sure to maintain your credibility by checking the content to ensure it’s free from errors. You can make this process easier by using services like Essayroo (as recommended by Best Australian Writers ) or Boom Essays, another popular service recently featured in the Huffington Post.

Educate Your Customers

In marketing, there’s the 80/20 rule that refers to the content that a business sends to its customers. This means that 80% of the content you send should be educational while the remaining 20% is promotional.

So, in relation to your email marketing strategy, you’re going to need to plan what educational content you’re going to send. Luckily, there’s a lot of opportunities open to you, whether you’re talking about your products and their origin, industry related news and media, information about your business and more.

The most important thing to remember here is to keep the content relevant and relatable to your business. If you’re strapped for time, you can use writing services like State of Writing and Academadvisor for writing, editing or proofreading your emails.

Re-Engaging Customers

Sometimes you’ll see customers on your page analytics who regularly came to your website and interacted with your content and products but have since disappeared for whatever reason.

This is one of the easiest automated emails to set up as you can wait a month or two to remind customers that you exist as well as some information on what they are missing out on! “This can re-engage potentially lost customers, bringing them back to your business, customers you would have lost completely without email” – explains Richard Lainez, an Email Marketer at Assignment Help.

Conclusion

As you can see, there are many simple yet effective ways to implement email automation into the marketing process of your e-commerce store. All you need to do is get creative with what you want to achieve, and you can be sure your campaign will be a success.

How to plan a successful content marketing workflow in just 5 steps

How to plan a successful content marketing workflow in just 5 steps

Gloria Kopp is an ecommerce digital marketer at Academized. She is an editor at Studydemic blog for writers and international students. Gloria is a contributor at Collective Evolution, Template Monster and Big Assignments. Follow her on Twitter: @Gloria_Kopp


 

Content marketing is one of the most important and essential parts of your marketing and advertising campaign which requires an immense amount of planning and organizing to be successful. More and more businesses are seeing the benefits of having a content marketing workflow as it can help you and your team to streamline your processes and focus on achieving quality and results. Most businesses will have a workflow in place already but is it as successful as it can? Today, we’ll explore five key steps you can take when creating your workflow to ensure all the bases are covered and that your content is a success.

Identify Who You Need

Marketing teams can be extremely vast and variable departments with many different roles and job titles, from graphic designers and UX technicians to writers and SEO managers. When planning the start of your workflow, you need to create a list of all the job roles that you want to be included in that campaign. “This will help you to organize and plan who is going to carry out what tasks, whether you need to outsource any parts of the project and how your budget is going to match the project” – says Victor Raines, a Content Marketer at Resumention.

Finalise the Tasks Needed

Once you’ve created a list of the people that are going to be involved in your content marketing project, you need to define what jobs are in needed in order to make the project a success. When sorting out this stage of the workflow, the more detail you include now, the better your final project will be and the fewer edits you’ll have to make. And I mean you can go into an immense amount of detail. In regard to written content, think about the language you’re going to use, the grammar, the style of punctuation, the tone of voice and any information you need to include regarding legal or policy requirements.

Set Your Timeframe

With accurate time management in place in your content workflow, you can effectively manage your content marketing project to ensure everything is done on time and even leaves you enough time to make any changes and adjustments, so your content is ready and perfect for release. “It’s imperative that you remember that ASAP and Yesterday are not accurate deadlines to set your team members and precise times and dates are essential to your team’s success. Remember to include team feedback stages and leave enough time to evaluate your content and make changes” – explains Milton Clausen, a Marketing Manager at Bestbritishessays and Huffingtonpost writer. Don’t forget to make the deadlines realistic.

Creating the Content

Now that everything is organized, it’s time to set your teams up so they can start creating the content itself. With all the information and considerations listed above, this should be a relatively easy task since all the data has been compiled and it’s now a case of piecing it all together. Of course, you’ll need to ensure all of your teams maintain contact, so the style, of say, your images and banners match with the written content itself. Set up team managers to oversee every aspect of the content creation process so you can be sure that a minimal amount of errors and adjustments need to be made. Make your content easy to digest with writing tools like Bigassignments and Oxessays for more information, and your readers will digest it.

Review, Perfect, Publish

Once the content has been completed by the deadline, it’s time to review and make any necessary changes to the content that you need to make. Remember to check out relevant keywords and design aspects to ensure you’re giving the readers what they want. Once finalized, it’s time to release your content to the world and watch the traffic, sales and revenue soar! Don’t forget you can use a thesaurus or professional writing guides, like the ones found at My Writing Way and Australian help, be sure to make sure your language is captivating and compelling for your readers.

Using Online Tools for Creating a Successful Workflow

When it comes to creating your content marketing workflow, there are many processes which can be optimized and streamlined so you can process them faster and more effectively. Here are some tools and resources that can help you do this; Pulse App – budget is a huge part of planning your content marketing workflow, and it needs to be controlled. You can use this app to make sure that all your income and expenses are managed accurately. Trello – this is a collaboration app that allows you to bring all the members of your team together into one easy-to-use place where you can organize all your tasks, goals and communications.Revieweal or Paper Fellows – creating the content itself can be extremely time-consuming, and you may not have the time to do it properly. Instead, you can use writing services such as these to outsource your content creation tasks. Creately – this is a fully-featured desktop app where you can create and generate visual content marketing workflows from scratch Thrively – this is a time and workflow management platform that allows you to manage all aspects of your workflow, including sales leads, invoices and all the data surrounding your content marketing campaign. Academized / Grammarix – a copywriting tool to use when planning and research stages of content writing can drag on much longer than anticipated.

Conclusion

As you can see, when it comes to a content marketing workflow, the whole idea is to get as organized and as planned as possible. The more information and creases you iron out in the initial stages of the workflow, the smoother the entire process will be, allowing you to only focus on the important tasks so you can guarantee the success of your project.

Instead of loan financing consider a ROBS

Instead of loan financing consider a ROBS

For prospective buyers in the U.S. with substantial assets lodged in a 401(k), 501 (k), IRA or other retirement fund, Rollovers as Business Start-Ups (ROBS) may provide a means of financing with some very significant advantages.

When we say ‘substantial’, that means a minimum of $50,000 to roll over. Otherwise, the set-up and monthly maintenance costs for the quite complex ROBS arrangement will be too great a proportion of the investment to justify using this scheme.

However, for significant investment amounts the costs are entirely viable and quite advantageous. Set-up fees paid to an experienced ROBS provider are normally around $5000 upfront, with an ongoing annual administration fee of up to $2000. Legally speaking it is actually possible to do all the work yourself, without using a ROBS provider, but that would be foolhardy with many IRS and DOL compliance complexities ready to trip you up.

In fact, the steps are much too complicated to cover comprehensively in an article such as this one. However, here is an introduction to the world of ROBS, what it is and basically how it works.

Age is no barrier

You don’t have to be any particular age to roll-over funds from your eligible tax-deferred retirement account. It doesn’t matter how young or old you are. You just need to have the funds in credit and then work systematically through the rollover process. The great advantage is that this is not a loan at all, so there are no loan fees and no interest to pay. At the end of the day, it’s your money. You are simply accessing it for business investment purposes. The funds cannot be used to service personal expenses or to acquire purely personal assets. ROBS is for business investment only. As one potential source of finance to be considered, it can be used in parallel with other financings, including loans

In essence, you will be rolling over your money from one retirement fund into another new one, which your business will set-up. If you are buying an existing business you will put the necessary structures in place for the roll-over prior to the transfer of the business. The modest set-up costs cannot be covered by the ROBS itself. You need to cover these separately up front.

How does it work?

The first step is creating a C corporation (C-corp). This is obligatory and cannot be circumvented. However, this part is actually very easy and quite inexpensive, although specific details will vary slightly from State to State. The more complex step is then setting up an employee retirement plan, most commonly a new 401(k), for the new entity. At this point, you roll over the amount you have decided on from your existing personal 401(k), 501(k) or IRA into the new corporation’s retirement plan. The plan purchases stock in the C-corp, acquiring a shareholding on behalf of all employees, as will be explained shortly, and that purchase amount is released as your business capital. The ROBS rollover is now completed. There is no loan of any kind involved to repay. Of course, the retirement fund earns its share of the profits for future distribution and takes its share of any hit if the business loses money.

In the next stage the C-corp, of which you are the part-owner and also technically an employee, uses the capitalization from the ROBS to build a new business or buy and develop an existing one. The funds can be used for any normal legitimate business purpose, but not for personal expenses that only you benefit from and not for over-payment to yourself of any inflated management or director fees. In fact, any salary payment to yourself must not come from the rolled-over funds directly but must come only out of operating expenses. As we said, it’s your money – but in return for the release of investment funds, the new C-corp retirement plan retains its shareholding in the business and receives its share of all profits after reasonable expenses. The retirement fund will be a significant or even the major shareholder (depending on what other financing sources were used) and as director, you are required to the best of your ability to operate the company to the financial benefit of the fund and its members. You will be covered by the C-corp retirement plan and profits accrued by the fund will ultimately benefit you when drawn down.

Administration of this complex legal arrangement is demanding and really needs to be outsourced to an expert ROBS provider, although this is not legally mandatory. Ongoing monitoring for IRS and the DOL, and other statutory compliance including managing the annual IRS Form 5500 return is definitely no work for the business operator. However, the fees for this administration are actually minuscule compared to the loan costs on a comparable amount of financing from traditional loan sources.

Remember it’s still a retirement fund

ROBS advantages come with some complexities. One of these is that all employees of your new business have the right to join the C-corp retirement fund which you have set up. Note that you yourself must be classified as an employee managing or directing the business. There is no legal specification of the number of hours you must actively work on the business or how much you may pay yourself from the business operation, except that payments to yourself must be deemed ‘reasonable’. Otherwise, they will be treated as a ROBS prohibited transaction. This means that using a ROBS arrangement may not be quite as suitable for buying businesses with a ‘passivity premium’ because of requiring very little owner presence or investment of time.

All employees of the business will have the right to join the retirement fund and legally must be invited to do so. The ROBS provider routinely oversees this notification as part of the ongoing monitoring of the arrangement. For smaller businesses, this is unlikely to be an issue as the definition of ‘employee’ is quite restrictive. Contract service providers and casual workers are not covered at all. Eligibility varies slightly from State to State but essentially an employee must be at least 21 years of age, have worked for the business for twelve months or longer, and have worked a minimum of 1,000 hours during the preceding year. Processing the employee contributions and employer liabilities under the plan is quite onerous and is best handled through the ROBS advisor. However, many smaller online businesses will actually have few or not even any additional employees.

Winding up a ROBS arrangement

Often people enthusiastically enter into an arrangement in the excitement of a new business venture without working through what the eventual exit will entail. With a standard business loan, with all the associated costs and often punishing interest rates, paying out the loan when the business is eventually sold is very straightforward even if financially penalizing.

By contrast, exiting a ROBS provision is inexpensive but a little more complex. If the business is sold then the C-corp retirement fund as a shareholder receives its due share of the sale price, minus funds required to wind down the business and pay out existing liabilities. The retirement plan is then wound up and its assets distributed proportionally to all employees who have contributions in the fund. As the business owner and director your own closing balance in the fund is simply rolled over into a new or existing personal IRA for your (highly tax-effective) benefit. Essentially, through ROBS you have used your assets in an eligible retirement plan to finance business for as long as you operate the business, maybe for many years. At no point through this arrangement have you taken a loan or drawn down cash, and hopefully the ROBS has saved you lots of money.

However, it would be remiss in this article not to cover the implications of a less positive scenario in which the business makes a loss or even totally folds. Simply put, if the business has lost money and is sold for a lesser value than it was set up or acquired for, then the retirement fund and all of its beneficiaries, including you, take a hit. In the event of a total business failure, the assets you originally held in your original retirement plan will have been wiped; but as the ROBS is not a loan there is no financial liability to repay. Formally unwinding the ROBS must still be done according to law and the C-corp retirement plan is then closed out. Any other employees covered by the plan must have their situation and options explained to them. The ROBS provider would attend to this.

ROBS presents a positive opportunity

The ROBS scheme, while it may sound a bit daunting from the explanation provided above, is actually a very innovative business-backing initiative. It enables entrepreneurs to access money which is locked away in a retirement fund for business ventures, without the burden of normal business loans and with the prospect of strong profit returns on personal investment.

Start-up businesses and online businesses which have been bought and built up using some capital from ROBS arrangements actually have a significantly higher success rate than businesses relying more heavily on business loans for the primary financing. This may possibly be because business buyers who are backed by both retirement fund assets and the sophistication to understand the ROBS provisions are likely to have the capacity and the necessary perseverance to develop financially successful business outcomes.

ROBS arrangements are not for everyone. If you have $50,000 or more locked away in eligible retirement plan assets, make some time to talk to an expert ROBS provider. A substantial one-off first-time advisory consultation is generally offered totally free and without obligation. Be aware that the adviser will have a vested interest in talking up the arrangement, but you can always walk away. It’s a fascinating and potentially highly lucrative financing option to explore.