The trend is well underway. Research indicates that more and more baby boomers are starting a business. Whether it’s consulting, taking the reins of a franchise, or developing a home-based enterprise centered on a personal passion or hobby, starting a business in retirement can offer many benefits. Done properly, a retirement business can not only help fill a retiree’s time and replace their work identity, it can also help make their retirement savings last longer.
Obviously, the most important part is “done properly.” Unfortunately, I see many people make the jump to entrepreneurship unprepared for the mental and financial toll it can take. Instead of providing joy, fulfillment and reducing the burden on their savings, it can consume both them and their nest egg. There are a variety of good online tools and resources for new business owners to get started, but I want to share some ideas and advice I’ve accumulated helping clients make the transition. I don’t wants to talk you out of following your passion, but instead to put it and your approach to it into a realistic perspective.
Do You Plan To Sell Your “Baby” Or Someone Else’s?
New business owners who develop their own product or service often endure criticism and disappointment. When you’re employed or selling someone’s widget you’re usually less attached to it emotionally. That makes it easier to criticize the operation and shift responsibility or blame when things don’t go well. If it’s your own idea or service, however, you not only carry the financial burden, but the emotional load as well. We live in a capitalistic society, which means you’ll run into people who don’t like what you have to offer, who don’t want you to succeed, doubt your ability to make it work, and will let you and others know how they feel through online forums and web comment sections.
Not everyone is wired like Colonel Sanders, who was told “no” over 1,000 times before he got his first “yes” on his famous chicken recipe. And that’s okay. If you’re not prepared to deal with the mental anguish and the trials and tribulations that come from hanging out you own shingle and developing your own product or service, consider buying into an existing business with a proven track record, or partnering with someone who will help share the emotional liability.
The Only Time You Start At The Top Is When Digging A Hole
You can’t spend your way to success. Too often, I see new business owners spend unnecessarily trying to fulfill their idea of being a business owner. Even before they get their first client they invest in the latest and greatest tablet, cell-phone, CRM software, website, or office space to prove to themselves and others that they are in business and ready to make money. However, starting and running a successful business has very little to do with how much stuff one has, or how new it is. It’s more about your mindset and the sacrifices you’re willing to make in order to make it work.
One of my clients, who was near retirement, lost his job and decided to start a new consulting business. He was still in the planning and development phase yet was about to sign a long-term lease for an office with a training room. He felt it was important for the sake of credibility to have a business location. I discouraged him from taking on such a large and lengthy financial commitment until he had several paying customers. Thankfully, he took the advice, which saved him thousands of dollars and helped him realize that most of the training he was hoping to provide in his office has moved online.
Instead of draining personal savings to create what he thought a business consultant should have, he only had to buy a webcam system and new microphone to secure his first customer. It proved to be a major difference between the financial hole he would have dug himself into and his new break-even point. A basic rule of thumb: Use business revenue to grow your business not retirement savings.
Expect The Unexpected
My wife and I enjoy watching home renovation television shows and even interviewed Jonathan and Drew Scott (aka The Property Brothers) about the business of home remodeling. One of their most important steps is building in a “contingency” … a budget for unexpected problems. Should they find mold, asbestos, or outdated electrical work, they have funds set aside to address the issue. This contingency fund usually helps them avoid overspending, altering the project’s time frame, or abandoning it altogether.
New business owners need to build in contingencies as well. Among the biggest threats to any new business is under-capitalization; not having enough money to carry on in face of difficulties, industry changes, or franchise requirements. Another client of mine bought into a franchise and was told he there would be no royalty fees until registering his first event. He thought that was saving him $500 a month, but then reality struck. He soon discovered that these fees were only being deferred, not eliminated for those prior months. It ended up being a $2,000 setback for him.
Nobody wants to part with $2,000 unexpectedly but it was in his contract and, fortunately, he had the funds available. If he hadn’t been prepared he could have easily become bitter, soured on the franchise relationship, and even let it impact the sports program he was teaching. By meeting the challenge head on, he positioned his business to grow instead of stagnate.
Fall In Love With The Work Not The Numbers
Understanding the financials of a new business can be one of the most difficult and frustrating things for new entrepreneurs. A business, especially your own, can start out exciting as you dream of the freedom, financial gain, and ability to impact someone else’s life. But businesses live and die based on how much work it takes to make it succeed, not the numbers on paper. Take multi-level marketing for example. I don’t doubt that it can work, but a lot of people fail at it because they fall in love with the numbers, not the work.
You’ve probably heard the pitch whereby all you have to do is sign up six people to work under you. Then each one of those six, in turn, get six more people working under them and, in no time, you have a hundred people working for you. On paper, it sounds easy and logical. Surely, you know at least six people who would like to make more money doing things they already like, or buying stuff they regularly use, right? What many fail to realize, though, is that it may require seeking out and talking to 100 people just to get one qualified person signed up. Therefore, it’s more likely that they’re going to have to call 600 people to reach their goal, not just a few family and friends.
Aspiring writers represent another good example of the need to understand the numbers. It’s doesn’t seem farfetched to be able to transform your idea for a children’s book, murder mystery, or cookbook into a $10 paperback and sell it to a thousand people. Based on the numbers alone, how could any retiree balk at adding an extra $10,000 to their retirement account?
Attractive numbers combined with the seeming ease of making a book available through major retailers, such as Amazon.com or Barnes and Noble and it’s easy to see how a post-retirement writing career is born. Retailers, however, can take up to a 55% cut from your book’s final sale price ($5.50 from a $10 item). On the surface, that may not seem like a terrible split, considering the web traffic they bring to the deal. Still, you have to factor in the cost to produce your book (say, $3.50 per copy) plus another $1.00 or so to ship each one to the retailers. That means you could wind up actually paying people to read your material, not making extra money.
That doesn’t mean it can’t work, it just means there’s more to it than some simple money-making math on paper.
Starting and running a retirement business may not be for everyone. Like other areas of life, it takes time, energy, practice, patience, and money to succeed. A rule of thumb is that it can take three to five years for a new business to be profitable. That’s a realistic expectation with which to go into any form of self-employment. If you can be profitable before then, you’re ahead of the curve.
P.S. Let me know what you think of the article by leaving a comment… and I want to invite you to follow me here at Forbes.com and on Twitter @robertlaura