The allure of starting a business is strong. That’s part of the American dream for many, especially those in their 50s and older who are looking to leave their lifelong jobs in the corporate world or retire from a small-to-midsize company.
The reality is that 27 percent of start up businesses fail within the first year and are at continued risk after that first year. Two decades ago, 20 percent of businesses that went under after a year, a reflection of the increased risk these days.
For those over 50 who’ve saved for their retirement, the last thing they want to do is put their savings and investments at risk. They need a plan.
One of those options is buying an existing business to take out some of the risk because companies in business for 15 years haven’t seen their risk of failure increase over the years, says Tensie Homan, the former managing director of KPMG’s Denver office and co-author of Beat the Exit Bubble: The Ultimate Guide for Exiting Your Business. If you want the stability and don’t want to worry about losing money on a startup, look at an established business as your best bet, she says.
“There’s a lot of risk to starting a business,” Homan says. “If you look at all of the stats, the rate of start up failures is higher than it has ever been and it’s expected to continue. I think the technology world and social media has made it appear much easier to start a business than it might be. If you’re not sure of the cost of starting a business — and you never really know, depending on what you’re getting into — you’re at risk for the unknown. If you purchase a business, you know you’re financial outlay and know the risks better what you’re taking.”
Homan says the opportunities are abundant with five million baby boomer business owners exciting over the next five years and ten million over the next 10 to 15 years. People retiring from their careers and moving into the next phase of their life, need to ask themselves the right questions and get the right answers on whether to start up a new business or buy one, she says.
“That’s a lot of businesses that are going to be up for sale and there are a lot of opportunities for someone to come in and take on those businesses,” Homan says. “Before they make that decision, I think it’s important they understand what are they trying to achieve with starting a new business.”
What are some of those questions people should ask, according to Homan?
- Are they looking for a steady income?
- Do they want to replace income they had before?
- Are they looking for something that’s full time–something they can really spend time on or would they prefer to have a management team in place where they can in and start managing that team?
- Are they pursuing what they’re passionate about or are they just thinking it would be great not to have to work for someone again?
Homan says many times people say this is what I want to do, but you may be able to buy an existing business and take something that’s close to what you want and eventually transform that while you have cash flow coming from it.
“I think oftentimes the lure of starting a business is very strong, especially for people who haven’t owned a business before,” Homan says. “Maybe they went through corporate America and that’s very appealing to them. But they need to make sure when they make that step that’s it’s thought through and what it is they’re trying to achieve.”
Those 50 and older are in a position financially that might allow them to buy a business and not put all of their retirement at risk, Homan says. In buying an existing business, the start up costs is completed and hopefully it has an established brand and customer base, she says.
“There might be immediate cash flow available to a buyer versus what you would go through as an entrepreneur,” Homan says. “The original entrepreneur of that business has already made a lot of mistakes. You get the benefit of that learning curve as you take on this new business.”
Even people that own businesses that sell them often times start a different business. Homan says people should go into it with their eyes open and ask the right questions to make sure they get the right answers. Don’t make assumptions on the market or what the lifestyle might be, she says. They assume they’ll work less and see their family more, Homan says.
“There are all these myths about owning a business,” Homan says. “If you haven’t owned one before it sounds fabulous not to work for anyone and that you won’t work as hard. Almost every business owner will tell you that you’ll work harder than you would have in any other environment, but hopefully it’s doing something that you love so it’s not as difficult to work those hours. If you expect to get rich off of it I would say that could be a challenge. Not everyone gets rich off of their start up and owning a business. Make sure you’re doing it for the right reasons.”
If you know going in that you want to buy a business and want a steady stream of income out of that business for you and your family, you should look at a business with a strong management team that has steady cash flow, Homan says. Maybe that owner wants to do something else or they have come to an age that they want to retire, she says.
Homan says it’s important to have a passion, but having passion doesn’t make you an expert. Most buyers aren’t experts in the business they buy. You don’t have to be an expert, but just be willing to do the work and understand the risks, Homan says.
“Social media and the Internet have created a myth of what business ownership is,” Homan says. “The very few who started in their basement and are doing well creates this perception that it’s easy and anyone can do it. They have an idea on how they want something more tech savvy or maybe sexier or specific. But a niche business is very difficult to grow and remain competitive. Some do it, but it’s very difficult. That’s part of the reason we have a high rate of failure.”
Read more about money and lifestyle issues for Americans 50+ at http://nowitcounts.com
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