For everyone who wants to leave the corporate world and create a start-up business to become one of the growing number of "new normal" baby boomers becoming entrepreneurs, the risks are great.
In fact, 27 percent of start-up businesses fail within the first year and are at continued risk after that. Two decades ago, only 20 percent of businesses went under after a year.
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. Author Tensie Homan, former managing director of KPMG's Denver office and co-author of Beat the Exit Bubble: The Ultimate Guide for Exiting Your Business, is here to help.
For starters, one of the best options is buying an existing business -- companies in business for 15 years or more haven't seen their risk of failure increase over the years.
"There's a lot of risk to starting a business," Homan says. "If you look at all of the stats, the rate of startup failures is higher than it has ever been, and it's expected to continue. The technology world and social media have 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 better know your financial outlay and the risks."
Homan says the opportunities are abundant with five million Baby Boomer business owners exiting 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 before starting a 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, it's important they understand what they are trying to achieve."
- Are you looking for a steady income?
Buying an existing business that's close to what you want might be more eventually transformed into what you want than if you started from scratch -- and you'd already have cash flow coming from it.
"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 doing what 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 savings at risk, Homan says. In buying an existing business, the startup cost is done and hopefully it has an established brand and customer base.
"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 who already own businesses often sell them to 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, including assuming that you'll work less and see your family more.
"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 you think 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 or 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.
Homan says it's important to have a passion, but having passion doesn't make you an expert.
"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 create 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. But a niche business is very difficult to grow and remain competitive. Some do it, but it's very difficult."