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Your Second Wind—Starting a New Business in Retirement

For generations past, retirement represented an extended period of leisure time punctuated by occasional games of golf and bridge. 
But today, with lengthening life expectancies and dwindling pensions, many Americans are looking to retirement as an opportunity to start a new business.

 

Senior Start-ups: Common Characteristics

Older entrepreneurs differ from their younger counterparts in several critical ways. For one, seniors are usually in a much better financial position than younger entrepreneurs. Their bigger financial cushion—retirement packages, savings or home ownership—affords them flexibility in the initial stages of a start-up, where fundi

ng is often critical. Because they can often rely on other sources for current income, they are in a better position to take greater entrepreneurial risks. Start-up funding may also be easier to come by for seniors, who can draw from personal savings and a lifetime of business and professional contacts. Senior start-ups may also be looked on more favorably by lenders, who often associate older entrepreneurs with a lower risk of default.

Creativity and business acumen are also key characteristics of elder entrepreneurs. Older entrepreneurs often possess valuable intangible assets, such as a broad network of contacts, professional credibility and investment experience. Having been tested again and again in their lives, they may be less afraid of failure or worried about what others will think. Instead of that urgency to “make it,” they get satisfaction from the process of building their companies.

 

What Color Is Your Parachute?

The type of businesses started by seniors varies widely. Consultancies, small retail businesses and bed-and-breakfast establishments are perennial favorites. For many, web-based businesses offer particular appeal, since they can be operated right out of your home in the early stages, often requiring no more than a high-speed Internet connection and a phone line. While most senior start-ups are related to an individual’s former career, some break out into completely new territory. This is often the case with “serial” entrepreneurs—those who have started many businesses over their lives and are experts at the start-up process itself. Whatever business you might consider, make sure to first do your homework. Talk to owners of similar businesses and scope out the market for such products or services in your area. Then, take the time to draft a formal business plan.

 

Not for Everybody

As attractive as starting a new business in retirement may sound, there are several considerations you should bear in mind before taking the leap. Start-ups can be physically and emotionally draining for a retiree. Seniors tend to work fewer hours and take more vacations than their younger counterparts. Ask yourself: Are you willing or able to work the long hours that may be required in a fledgling business? There is also the issue of health to consider. For seniors, health problems can come at any time. Even if you are in top shape, you should factor in contingencies for unexpected health issues for yourself and your spouse.

Then there’s financial vulnerability. The real possibility of failure and money loss is much more significant at the age of 60 or 65 than at 30 when there is ample time to rebuild your assets and start over. Seniors also rely much more on personal investments to supply a portion of their income. For these reasons, seniors are advised not to sink too great a portion of their investment portfolio into a new business and should avoid using personal assets, such as a home, as loan collateral.

 

Successful Start-up Tips:

  • Build on already established contacts and expertise. Seniors have a distinct advantage over younger entrepreneurs in their experience and long-established business network, which can give them a competitive advantage in virtually any business.
  • Start small. When starting up a new business in retirement, many begin with a small consultancy and gradually work their way into a full-blown business. This will give you time to assess whether you are willing or able to take on another full-time career.
  • Don’t bet the farm. If you’re retired, you probably rely on personal investments for a portion of your income. Consider your income needs before investing a portion of your savings in a new business, and think twice before taking on any personal debt.

 

Popular Choices
Some popular businesses among retirees include:

  • Adult day care
  • Driving service
  • Home handyman
  • Sales
  • Real estate agent
  • Business consultant
  • Home/pet sitting
  • Arts/crafts

Top 5 Reasons to Outsource Bookkeeping

bookkeepingAs many of our readers are small business owners, we know bookkeeping can be a major headache. It is something we all have to do, and something we are all capable of doing to a degree, but is it really what a small business owner should be doing? Trying to get your business off the ground, keep it profitable, and handle the day to day is what really needs to hold your focus. Here are some reasons why outsourcing bookkeeping might make all the difference for your small business:
 
1) Spend time on your business, not in your business. As the mastermind behind the company, you time is better spent making sales and managing employees. Most business owners do not have the skill set for bookkeeping, which makes it take double or triple the time it should. This is time away from growing your business; this is valuable time you are likely wasting.
 
2) Save money. Yes, of course you will have to pay a contractor to complete your bookkeeping, but you will be able to save on lost productivity which will bring in more revenue. If you are good at what you do, this service will pay for itself!
 
3) Quality of Life. We can’t say this enough! For every business owner, the #1 headache is bookkeeping. Stop worrying about it and let a professional do it for you. You will never be behind, you won’t be stressed to file your tax return, and it will be a weight off your shoulders!
 
4) It will be done right the first time. At the end of the year when you send your numbers to your accountant, they should be asking you questions about what you have provided. Usually the questions open a can of worms, bookkeeping has to be cleaned up, and the additional fees start to accumulate. A qualified bookkeeper will do it right the first time so you can rest easy and avoid unnecessary charges when tax time rolls around.
 
5) See your numbers in real time. At the end of the year when you look back on your numbers it is usually a surprise, but we believe profit, taxes, and finances in general should be based on intention, not luck. If you are up to date on bookkeeping, you should know your profit, meaning you know what bills you can pay, how much money to save, and how much tax is due. You should be able to use your bookkeeping numbers to plan, budget, and project out your business.
 
Use your skills where they are best fit and let a professional handle the bookkeeping headache for you. Take this advice for any part of your business that is not your expertise, like your website, tax return, advertising, or even hiring!

Your Second Wind—Starting a New Business in Retirement

Starting a businessFor generations past, retirement represented an extended period of leisure time punctuated by occasional games of golf and bridge. But today, with lengthening life expectancies and dwindling pensions, many Americans are looking to retirement as an opportunity to start a new business.
 
Senior Start-ups: Common Characteristics
Older entrepreneurs differ from their younger counterparts in several critical ways. For one, seniors are usually in a much better financial position than younger entrepreneurs. Their bigger financial cushion—retirement packages, savings or home ownership—affords them flexibility in the initial stages of a start-up, where funding is often critical. Because they can often rely on other sources for current income, they are in a better position to take greater entrepreneurial risks. Start-up funding may also be easier to come by for seniors, who can draw from personal savings and a lifetime of business and professional contacts. Senior start-ups may also be looked on more favorably by lenders, who often associate older entrepreneurs with a lower risk of default.
 
Creativity and business acumen are also key characteristics of elder entrepreneurs. Older entrepreneurs often possess valuable intangible assets, such as a broad network of contacts, professional credibility and investment experience. Having been tested again and again in their lives, they may be less afraid of failure or worried about what others will think. Instead of that urgency to “make it,” they get satisfaction from the process of building their companies.
 
What Color Is Your Parachute?
The type of businesses started by seniors varies widely. Consultancies, small retail businesses and bed-and-breakfast establishments are perennial favorites. For many, web-based businesses offer particular appeal, since they can be operated right out of your home in the early stages, often requiring no more than a high-speed Internet connection and a phone line. While most senior start-ups are related to an individual’s former career, some break out into completely new territory. This is often the case with “serial” entrepreneurs—those who have started many businesses over their lives and are experts at the start-up process itself. Whatever business you might consider, make sure to first do your homework. Talk to owners of similar businesses and scope out the market for such products or services in your area. Then, take the time to draft a formal business plan.
 
Not for Everybody
As attractive as starting a new business in retirement may sound, there are several considerations you should bear in mind before taking the leap. Start-ups can be physically and emotionally draining for a retiree. Seniors tend to work fewer hours and take more vacations than their younger counterparts. Ask yourself: Are you willing or able to work the long hours that may be required in a fledgling business? There is also the issue of health to consider. For seniors, health problems can come at any time. Even if you are in top shape, you should factor in contingencies for unexpected health issues for yourself and your spouse.
 
Then there’s financial vulnerability. The real possibility of failure and money loss is much more significant at the age of 60 or 65 than at 30 when there is ample time to rebuild your assets and start over. Seniors also rely much more on personal investments to supply a portion of their income. For these reasons, seniors are advised not to sink too great a portion of their investment portfolio into a new business and should avoid using personal assets, such as a home, as loan collateral.
 
Successful Start-up Tips:

  • Build on already established contacts and expertise. Seniors have a distinct advantage over younger entrepreneurs in their experience and long-established business network, which can give them a competitive advantage in virtually any business.
  • Start small. When starting up a new business in retirement, many begin with a small consultancy and gradually work their way into a full-blown business. This will give you time to assess whether you are willing or able to take on another full-time career.
  • Don’t bet the farm. If you’re retired, you probably rely on personal investments for a portion of your income. Consider your income needs before investing a portion of your savings in a new business, and think twice before taking on any personal debt.

 
Popular Choices
Some popular businesses among retirees include:

  • Adult day care
  • Driving service
  • Home handyman
  • Sales
  • Real estate agent
  • Business consultant
  • Home/pet sitting
  • Arts/crafts

What Every Small Business Owner Needs to Know

small business ownerIn our office we see clients every day starting new businesses, or even growing a business that has been a hobby for some time.  No matter what the industry, we get asked the same questions time and time again.  Here are a few tips to help you understand some basics of business ownership:
 
Owner Compensation:  The way a business owner gets paid is first based on the type of entity, and second based on the type of involvement in the company:
 
Sole Proprietor & Single-Member LLC’s:  Any money you take from your business for personal use should be accounted for in a draw account to help you track what you have taken during the year. Sole proprietors cannot deduct their wages or personal withdrawals as a business expense.  Single member LLC owners typically follow the tax rules of a sole-proprietor.
 
Partnerships & LLC’s:  The above rules for draws also apply to partnerships.  Partners are not employees and should not be issued a Form W-2, but do receive a K-1 that shows earnings, distributions, and/or guaranteed payments.  LLC’s, especially partnerships, can be tricky, so talk to a professional about your specific LLC.
 
Corporate Officers:  An officer of a corporation is generally a W-2 employee, but an officer who performs no (or only minor) services and is not entitled to receive any pay is NOT considered an employee.  Corporate officers often question what is considered reasonable compensation for their contribution to the business. Wages paid to you as an officer of a corporation should generally be appropriate with your duties. Find reference sources that provide averages of compensation paid for various types of services. The IRS may determine that adjustments must be made to the income and expenses of tax returns for both the corporation and an individual shareholder if the officer is substantially underpaid for services provided.
 
Employee vs. Contractor:
  The IRS is very strict on how you classify your employees and subcontractors.  You cannot designate a worker, including yourself, as an employee or independent contractor solely by the issuance of a W-2 or 1099-MISC.  It does not matter whether the person works full time or part time.  If you treat an employee like a contractor, you will be liable in the future for Social Security and Medicare taxes (and even withholding tax in some cases).  DON’T FORGET THAT 1099-MISC FORMS ARE DUE TO THE IRS BY 2/28/14.
 
What is Basis:
  Basis measures the amount that the owner has invested in (and taken from) the company, but in an S corporation, basis is a moving target as a shareholder’s investment in the company changes.  Calculating the S corporation shareholder’s basis correctly is important because it measures the amount the shareholder can withdraw or receive from the company without realizing income or gain.  A distribution (of cash or non-deductible expenses) in excess of basis is taxed as a capital gain on the shareholder’s personal return (long-term capital gain if the stock has been held for longer than one year).
 
The best advice we can give regarding S corporation basis is to “begin with the end in mind.”  Start tracking stock basis from day one and keep tracking it. If a complex situation comes up, tackle it right away, not years down the road when information and memories are incomplete. Save all Schedules K-1 to the company’s permanent file in case basis needs to be re-created or reviewed.
 
Flow Through Entity:  The net profit your company makes (not necessarily the cash you take out) is taxed on your personal tax return (except for C-corporations).
 

Business Pays Income Taxes on Net Profit Individual Pays Income Taxes on Net Profit Individual Pays SE tax on Business Profit Ind. Receives Guaranteed Payments on K-1 Individual Receives W-2
Sole Proprietor No Yes Yes No No
Partnership No Yes Yes Yes No
S-Corporation No Yes No No Yes
C-Corporation Yes No No No Yes

 
If you don’t understand how you are compensated or taxed as an owner, be sure to contact your accountant or attorney before you make a costly mistake!

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