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.
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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.