From the May 2005 issue of Startups

If you're past the age of 50 and looking for a challenge either in your retirement years or after an unexpected layoff, a business of your own could be the dream job you've been seeking. It allows you to do something you love on the schedule that suits you best. But can you really afford such entrepreneurial freedom? With the right financial strategy, the answer can be a resounding yes.

Finances can make or break any business, but managing finances wisely is especially critical for baby boomers, who are notorious for not saving. To illustrate: The median net worth among boomers is just $107,000 (not counting home equity), according to AARP, and fewer than 44 percent of boomers have any investments at all.

To join the self-employment ranks, you should first figure out how much money you'll need to launch and operate your business for six months to a year. Operating out of your home will keep startup costs low, but you'll still have expenses like equipment and supplies, insurance and business licenses, initial product inventory and shipping costs, and one-time expenses like incorporation costs. Make a few calls or search the internet to determine average prices for your estimate.

Next, decide where you'll obtain seed money. Because it's often difficult to get bank loans for a startup, other options include your personal savings or credit cards. But one thing you don't want to do is tap into your retirement savings or pension, according to Doug Flynn, a certified financial planner and partner with Flynn Zito Capital Management in Garden City, New York.

"Retirement money should be for retirement, so don't use it if you can help it," he says.

Once you have determined expenses and funding sources, develop a plan for covering your living expenses. Remember that in the early days of the business, you may not be able to take a salary. A retirement calculator like the one found at www.aarp.org/bulletin can help you estimate your financial needs. Set aside enough funds to cover living expenses for at least two years.

"Businesses that survive the first year have a much better chance of success, but you never know when the business will turn," Flynn says. "Set aside enough money to pay the mortgage so you don't have to quit too early."

Another way you can keep your risk low and your standard of living intact during startup: try out the new job on a part-time basis while you're still working full time. That buys you time to learn the ropes, plus you'll reduce the need for that two-year financial cushion.

"It also helps to go into business startup mode and cut personal costs," Flynn says, "Postpone a vacation. Eat out less. Making small sacrifices like these can help you avoid making drastic cuts in the business later."


Eileen Figure Sandlin is an award-winning freelance writer and author who writes on business topics.