Older people account for a rising share of
entrepreneurs, but should assess their financial situation before jumping in
Jul
3, 2018 @ 10:57 am
By Sarah Min
Andrew S. Morrison, 62, doesn't see himself
playing golf anytime soon.
When he left his post as a senior vice
president at a health insurance company in 2013, he consulted for a couple of
years, but found the work wasn't challenging. So in 2016, he invested $1.5
million of his own capital and started Fulcrum Sports, which manufactures and
markets sports nutrition products. The company has three powder formulas that
can be used in shaker bottles.
"I need something to work on or work
against," Mr. Morrison said. "And this formula and this company and
this business gave me focus, and they challenged me, and it excites me and it
drives me."
A 2016 Kauffman Foundation report showed
adults who are 55 to 64 years old account for a rising share of Americans
starting their own businesses. As people live longer and wait longer to collect
Social Security benefits, they also want to work longer.
"People turn around in their 50s and go,
'So is this what it's all about? Is this what I want to do?'" said Kerry Hannon, a jobs expert at AARP and author of
"Great Jobs for Everyone 50+." "So they do some soul-searching.
It's a time to really pursue a dream and something that they always wanted to
do."
Older people also have more capital with which
to pursue their passion projects. However, Lisa A.K. Kirchenbauer, who advises entrepreneurs at Omega
Wealth Management, said that would-be entrepreneurs underestimate what is
involved in starting a business. Taxes, benefits and uneven cash flow are all
tricky factors to consider.
"Have a plan for starting your business.
Don't just start it," Ms. Kirchenbauer said. "And from an emotional
standpoint, think about whether you're built and ready to be
an entrepreneur."
Setting up financially
For older adults who are considering starting
their own business, it's essential to review finances to see if there is
adequate capital. Ms. Kirchenbauer also advised setting aside some money to
make the transition, because cash flow will likely be uneven to start.
"You need to have faith in your product,
you have to have a cogent business plan and you need to have adequate
capital," Mr. Morrison said. He works with Ms. Kirchenbauer on investment
strategy and cash flow for both his business and personal lives.
Mr. Morrison operated in the red during his
first year of business. While the company is now in the black, his current
proceeds will still go to the next manufacturing run.
The uncertainty made him and his family
anxious. "You wonder whether you're going to see the light at the end of
the tunnel," he said.
Nevertheless, Mr. Morrison feels good about
Fulcrum Sports now that it seems to have turned a corner.
"We're not where we need to be, we're not
where we're going to be, but we're knocking on the door and we're growing
strongly," Mr. Morrison said. He saw a 3% to 5% return on his investment
in his second year of business.
Managing the business
After spending decades working for traditional
employers, older entrepreneurs may overlook the fact that starting a business
involves planning for benefits and taxes. For entrepreneurs who aren't yet on
Medicare or collecting Social Security, it's important to consider what to do
about medical benefits, life insurance and a 401(k).
"There's a lot of things that you take
for granted when you're with an employer," Ms. Kirchenbauer said.
Taxes are their own can of worms. Ms.
Kirchenbauer said that employers have to pay a self-employment tax, essentially
covering both the employer and employee shares of Social Security and Medicare
taxes. "It's more taxes," she said.
Meanwhile, entrepreneurs have to register with
the state, get a tax ID number and decide whether to hire employees.
And depending on the industry, they may also
want to look into changes enacted in last year's tax reform, as some of their
income may now be deductible.
The emotional side
The inspiration for Fulcrum Sports originally
came from Mr. Morrison's son, who was an athlete from an early age. Mr.
Morrison and his wife looked into nutrition and how they could supplement his
daily diet.
While Fulcrum is competing with big-name
brands like Gatorade, Mr. Morrison believes his business will build as it moves
forward. And it's been immensely emotionally rewarding for him.
"It's been very difficult and challenging,"
he said. "It makes me want to get out of bed in the morning and get after
it."
Ms. Kirchenbauer enjoys working with
entrepreneurs, and she encourages older adults who are considering starting a
business. Plus, it helps her clients hold off on touching their retirement
portfolios.
"This is a fairly good way to think of
retirement," she said, "the idea of transitioning out of the work
world more gradually rather than cold turkey."
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