6 smart moves for older entrepreneurs

Big risks to your savings

Job loss, a lack of retirement funds or just plain boredom at work have driven more people in their 50s and 60s to start their own businesses.

Entrepreneurship by older Americans grew more than 60% between 1996 and 2012, says the Kansas City, Mo.-based Kauffman Foundation.

Indeed, baby boomers now make up about half of all new business owners in the U.S., the Kauffman Index of Entrepreneurial Activity notes.

If you're at or near retirement age and the idea of opening your own business seems appealing, know your odds of failure are high. If that stark reality isn't enough to stop you, make sure you protect yourself from financial ruin.

Our 6 smart moves for late-life entrepreneurs can help you shelter your nest egg even as you take this big leap.

Be realistic about your chances

According to the U.S. Small Business Administration, only half of new businesses survive five years or more and only a third make it to 10 years.

Some of the reasons for failure, according to the SBA: lack of experience, insufficient capital, poor location, poor inventory management and personal use of business funds.

These facts should serve as a reality check: Your odds of success are pretty small.

Preparation, though, can help improve your chances. Start with realistic expectations, a solid business plan and the right financing.

Cathy Pareto, a certified financial planner in Coral Gables, Fla., says you should invest months, if not years, of homework and research before you launch your business.

"It takes a lot of time and a lot of money. And chances are real that it will fail," Pareto says. "There's a lot more to it than just opening your doors."

Set aside two years of living expenses

Even the most successful businesses can take a year or two to turn a profit, which is why you shouldn't plan to draw a salary right away.

You don't want to have to count on business revenues to pay your mortgage and personal bills early on because the money likely won't be there.

Living expenses will be held in personal accounts, but as a proprietor, you should factor them into your business plan.

"You need to have 'drop dead' money, enough to get you by for a couple of years if everything goes wrong," says Mari Adam, a financial adviser in Boca Raton, Fla.

So if you're going to invest $20,000 in your business and you have $4,000 per month in personal bills, you need access to $116,000.

Adam also recommends that you have an exit strategy in the event of failure. That could include a plan for how to liquidate business assets and how to return to the workforce.

Consider consulting first

Before you start a business with big capital investments and overhead, explore your options for consulting.

If you're in a field where you could work as a consultant, you'll likely be able to operate independently out of a home office.

Consulting offers a way to grow your business slowly with less risk. As it grows, you can add capital or invest more money.

You might not get the revenues you want, but if you fail, that's better than losing a business, firing employees and owing a mountain of debt.

And consulting can be a nice side job in retirement.

"Even if you only make $10,000 or $20,000 working a couple days per week, that's a nice bit of extra money in retirement," says Mari Adam of Adam Financial Associates in Boca Raton, Fla.

Consulting also might be a bit more realistic. You may have been able to put in 50-hour weeks when you were 35, but don't think you can do it at age 68.

Don't invest more than 10% of your assets

Even the best-planned businesses can fail.

That's why you shouldn't invest more money than you can stand losing.

How much you can risk depends on your assets, liquid and otherwise, age and health.

As a general rule of thumb, you probably shouldn't invest more than 10% of your liquid assets.

So if you've got $300,000 socked away in your 401(k), IRA and cash accounts, limit your business investment to $30,000 of your own money.

You'll want to avoid tapping your retirement funds if they're going to trigger a penalty and taxes.

Ideally you don't want to pay interest, but if you only have a year or two until you can touch your IRA, it may be best to take a short loan for start-up capital, then repay it when you can tap your retirement funds.

The interest on the loan may work out to be cheaper than the penalty on an early withdrawal of dividends from your IRA. Plus, the interest could be tax-deductible.

Stick with what you know

Starting a business is already hard enough. Don't make it harder by jumping into something you know little or nothing about.

If you worked as an engineer for 30 years, you probably shouldn't open a restaurant.

The truth is, you simply won't have time to learn a new industry. Successful business owners already know their business and spend their time marketing, networking and selling rather than doing frontline work.

And remember, running a business is much different than reporting to work as an employee, says Brad Fortier, president of Fortier Financial in New Orleans. Some people have a hard time making the transition.

"People who have been in a 30-year job have often been conditioned to think like an employee for so long," Fortier says. "They have to learn to think like an entrepreneur and invest in themselves."

Consider a franchise

If you're contemplating a new business, first consider a franchise.

Franchises offer you a proven business model and a road map from which to work. You won't have to reinvent the wheel.

While there's no guarantee the franchise will work in your location, at least you know it can work.

A franchise gives you access to a network that can help guide you to a location, hire your employees and run the business.

Big-name franchises can be very expensive. Consider that to have a McDonald's location, you need to put up a minimum of $750,000 of your own capital. Subway, on the other hand, says you can open up one of its restaurants for as little as $78,600, which includes the $15,000 franchise fee.

But smaller franchises can cost much less to open.

There are literally hundreds of successful franchises in every industry, from shipping and janitorial services to plumbing companies and tax preparation.

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