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5 Tips for Starting a Business Later in Life

By Curtis Hearn, CFP August 31, 2017
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Some people are born to be entrepreneurs. Colonel Sanders of KFC fame apparently wasn’t one of them. Although he had a lifelong skill for cooking, he didn’t sell his first Kentucky Fried Chicken franchise until he was 65 years old. The decades of his life before that consist mostly of a vicious cycle of dead-end jobs and hard knocks.

But for some people, business ownership just will not be denied. You might have stumbled onto an idea that you just can’t pass up, or perhaps ageism has made your workplace opportunities scarce. Whatever your reason, the time has come to embrace the challenge and become a business owner.

Before you make the leap, here are a few things to think about that may just mean the difference between happily ever after or losing everything you’ve worked so hard for.
What Does It Cost to Run Your Household?

One of the first things you should do before quitting your job is figure out what it takes to meet your current monthly household expenses. That may seem obvious, but it amazes me how often people do not know the answer to that question. A guess is not good enough, you need to track your expenses for at least three to four months to have a good idea. And don’t forget to include once-a-year payments like homeowners' insurance and taxes.

The reason for this is knowing the monthly nut you have to cover is vital to de-risking the entrepreneurial venture. Elon Musk is famous for living on $1.00 day as a young man, so he knew how much it would take to keep him alive. Once you know the monthly amount you need to cover, you can create a reasonable runway for your new business.
Create a Reasonable Runway for Your New Business

A pilot has only so much road to work with before he absolutely must get the plane off the ground. In the same way, a new business can’t flounder forever, it has to eventually make money.

In the initial planning stage of your business, you will need to have a general idea of how long it will take to get the business off the ground. In the meantime, of course, you will want to have enough money set aside to fund your expenses. Then, if you can’t get it going before the runway runs out, you have time to think about other options. (For related reading, see: 5 Warning Signs of Risk for a Small Business.)

Many entrepreneurs ask how they should invest these “runway” funds. My answer? When investing for short-term needs, it’s hard to argue against the safety of FDIC-insured bank accounts (e.g. savings, money markets, or CDs). You won’t make much in yield with today’s low interest rates, but you have the guarantee of not losing your capital, even in the event of a bank failure. By contrast, if you tie your money up in the stock market, there’s no guarantee that your funds won’t be worth less than you invested if the market goes down at an inopportune moment. However, if your runway is multiple years in length, you might consider a very conservative balanced mutual fund, but only for the part of your funds that are set aside for three to five years into the future. An allocation with less than 40-50% in equities is probably a reasonable starting point to consider.
Consider a Franchise Instead

While the upside for a new business can be exciting, starting a new venture later in life involves a lot of risk as well. If you’ve saved up some money for retirement, you don’t want to squander all of that on a new business, because if it doesn’t become profitable, you could be on welfare in your later years. In addition, starting a business will need capital, which means you probably shouldn’t be as aggressive in your investment portfolio. Why? Well, because what if a down market comes along, and your investments are down 20-30% at the same time you need to sell them to fund your business? Then you’ve sold at exactly the wrong time, locking in losses that you could otherwise allow time to rebound.

For all of these reasons, it may be safer to consider a franchise business rather than starting from scratch. Franchises have proven business models with financial records to prove their success. Of course, care has to be taken to analyze the different opportunities, but in this case you have actual data to review rather than just an idea in your head. (For related reading, see: Share the Wealth With Franchises.)
Will Your Business Be Adequately Capitalized?

Capital is like oxygen to a business. Nobody notices it when times are good, but when it’s gone it leaves the business on the ground gasping. If possible, you want the business to be capitalized in advance for the anticipated runway period and beyond. In addition, you might want to capitalize it with other people’s money rather than your own if possible and if the terms are right.

One of the many ways to do this is with a small business loan if you qualify. Check out the Small Business Association’s website for more details on this program.
Can Your Business be Bootstrapped?

Nathan Barry of the email marketing company ConvertKit tells a story about how he bootstrapped his $5 million revenue company for three years without taking a dime of outside funding. He put in $65,000 of his own money, and the rest of the funding came from customers. In other words, he funded the business step-by-step by selling, and after three years of growth, he had a multi-million dollar profitable business, with no debt or partners/investors to answer to. Bootstrapping a business may take a little longer, but it’s a much safer strategy, especially for those who are later in life and don’t have as much time to recover should things not work out. (For related reading, see: Companies That Succeeded With Bootstrapping.)
The Bottom Line

Starting a business at any age takes careful planning, but it’s even more vital later in life. Take careful steps to figure out not only the business plan itself, but also your own finances to prepare yourself for the lean startup years. By carefully mitigating risk and preparing for the worst, you can build a successful business that will fund your golden years in comfort and style.



This article originally appeared on the Smart Money Nation blog.
Curtis Hearn
Hearn, Curtis
Atlanta, GA
www.jphadvisory.com/
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