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The Retiree as Entrepreneur
June 2005

When circumstances force early retirement or a package deal provides the funds to pursue a dream, many over-50s think about becoming entrepreneurs.

Retirement is a major transition at any age. But when individuals retire early, particularly with large settlement packages, they are sometimes tempted to go into business. Whether the motivation is a need for additional income or new challenges or the realization of a lifelong dream, do you have what it takes to be an owner/manager?

Are you an Entrepreneur?

What motivates you? What makes you happy? Will your business idea require you to broaden your skills or develop new skills? Are you prepared to work hard? Do you work well on your own or would you prefer working with others?

Identify your drivers, your strengths, your weaknesses and your ability to tough it out through the difficult times that are the norm in running any business. If you have only recently come out of a forced retirement, make sure you have taken sufficient time to restore your confidence, explore your options and solidify your plans.

Do you Know the Business?

The best business is one that you know well. Many retirees become consultants in the industry in which they worked. Others may turn a lifetime hobby into a business venture. Sometimes individuals who have never been in business before will recognize a market niche and be quite successful. But too often budding entrepreneurs jump into a business without doing the proper research and planning. Starting up a business in a sector with which you are unfamiliar presents a high risk of failure. Build on what you already have.

Have you Prepared a Business Plan?

Many important considerations must be weighed in considering the viability of a start-up, such as the competition and potential market share, the demographics of your target customers, regulations, taxes, location, staffing, inventory, pricing, marketing, sales, operating costs and much more.

A business plan is essential. There are many resources in the library, your community and online that can help you get started on researching your market and developing a solid business plan. Find out if there are any community or government programs where you can upgrade your skills or learn new skills and network with similar people. Find out if there are any seminars available that are specifically designed for retirees who want to start a business.

Once you have drafted your business plan, your chartered accountant can assist you in developing your operating and cash flow forecasts and budgeting and ensuring your business plan has addressed the many facets to be considered.

Working with Others

A good working relationship is critical to investing capital and effort into an existing business or starting a new business with a partner or partners. Sharing experience, skills, costs, problems and the workload can make the venture more rewarding both socially and economically. On the other hand, sharing a business venture with someone else can have some hazards.

Make sure you are familiar with your potential business partner's approach to business and the experience and skills he or she can offer. How does this person set priorities? How much is he or she willing to invest in money, time and skills? Why do you think you will work well together? Have you discussed potential areas of conflict and how you will handle them? How will you set up the business? Have you considered the need for a partnership or shareholders' agreement?

If you have been approached to buy into a company, be wary. Do your due diligence as well as get professional advice. The offer may be nothing more than an attempt to obtain much needed cash flow for a sinking business. Make sure your funds are not destined to pay existing creditors. Do not invest until you have a comprehensive understanding of the operations and the potential for growth.

Base Decisions on Facts, not Emotions

Opening a restaurant, restoring old cars or making furniture - these types of hands-on businesses are often the dreams of many individuals who end one career and want to start another. Emotionally-based decisions do not have a place in investing in your future. Take off the rose-coloured glasses and do your homework. Too fast a move could mean unattainable sales, unrealistic expectations for business growth and a lack of preparedness for overcoming the inevitable challenges you will face when starting a new business.

If you are buying an existing business, be wary of a vendor who is anxious to close the sale. The vendor could pick up on your enthusiasm and help you self-promote your desires until you sell yourself on what could be a disaster. Watch out for fast-talking, high-pressure sales tactics. The individuals selling or promoting the business may harness any vulnerability you may have at this stage to make as much as they can on the sale or sales commission. If all you hear is glowing reports of how much money is to be made, be wary. If you are being pressured into making a quick decision, walk away.

Certainly, any dream is worth pursuing but if you start to wonder whether your decision is based on emotions rather than facts, it is time to go back to the drawing board. Keep focused on assessing whether going into business is a good match for your background and needs and whether your business idea truly has the potential to provide a good return on your investment.

I Can Turn it Around

Many entrepreneurs believe that they have the ability to turn around a business that is going down the tubes and restore its profitability. While many do succeed, this is an investment of time and money that requires very astute analysis and investigation.

Make sure you are thoroughly familiar with the business, know the reason for the losses and have the resources to turn it around. Ask yourself: Why has the business failed? Would my investment dollars be better spent establishing a new similar business rather than resurrecting a failing structure?

Distress purchases are generally not advisable; however, there are unique circumstances where the business has solid potential and the purchase price and terms of payment are highly favourable. Your chartered accountant can help you assess the viability of the business as well as give you professional advice on any tax advantages to be weighed in your decision.

Working Capital

Working capital is the lifeblood of all businesses. Start-up businesses need at least six months of working capital to launch their operations, introduce their products or services to the market and cover overheads. On top of operating expenses, you need to be prepared for the lapse of time between a sale and the collection of accounts receivable. If the business is seasonal, you will also need cash flow to maintain operations during these slow times.

If you are starting your business with the proceeds of a settlement, it may not be wise to invest all of it into the business. If you will need financing, again a professionally-prepared business plan is a must.

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