Making Bank Ready to start your dream business, but not willing to dip into your retirement savings? Here's how to make the leap without risking future security.
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If you're past the age of 50 and looking for a challengeeither in your retirement years or after an unexpected layoff, abusiness of your own could be the dream job you've beenseeking. It allows you to do something you love on the schedulethat suits you best. But can you really afford such entrepreneurialfreedom? With the right financial strategy, the answer can be aresounding yes.
Finances can make or break any business, but managing financeswisely is especially critical for baby boomers, who are notoriousfor not saving. To illustrate: The median net worth among boomersis just $107,000 (not counting home equity), according to AARP, andfewer than 44 percent of boomers have any investments at all.
To join the self-employment ranks, you should first figure outhow much money you'll need to launch and operate your businessfor six months to a year. Operating out of your home will keepstartup costs low, but you'll still have expenses likeequipment and supplies, insurance and business licenses, initialproduct inventory and shipping costs, and one-time expenses likeincorporation costs. Make a few calls or search the internet todetermine average prices for your estimate.
Next, decide where you'll obtain seed money. Becauseit's often difficult to get bank loans for a startup, otheroptions include your personal savings or credit cards. But onething you don't want to do is tap into your retirement savingsor pension, according to Doug Flynn, a certified financial plannerand partner with Flynn Zito Capital Management in Garden City, NewYork.
"Retirement money should be for retirement, so don'tuse it if you can help it," he says.
Once you have determined expenses and funding sources, develop aplan for covering your living expenses. Remember that in the earlydays of the business, you may not be able to take a salary. Aretirement calculator like the one found at www.aarp.org/bulletin can help you estimate yourfinancial needs. Set aside enough funds to cover living expensesfor at least two years.
"Businesses that survive the first year have a much betterchance of success, but you never know when the business willturn," Flynn says. "Set aside enough money to pay themortgage so you don't have to quit too early."
Another way you can keep your risk low and your standard ofliving intact during startup: try out the new job on a part-timebasis while you're still working full time. That buys you timeto learn the ropes, plus you'll reduce the need for thattwo-year financial cushion.
"It also helps to go into business startup mode and cutpersonal costs," Flynn says, "Postpone a vacation. Eatout less. Making small sacrifices like these can help you avoidmaking drastic cuts in the business later."
Eileen Figure Sandlin is an award-winning freelance writerand author who writes on business topics.
