What older people should consider when starting a business

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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