Monthly Archives: October 2019

Next Avenue: Starting a Business After 50: How to Manage the Financial Risk

Questions to ask and five sources of funding

Credit: Adobe Stock

By Jessica Thiefels
Small Business Writer
October 30, 2019

Part of the AMERICA’S ENTREPRENEURS SPECIAL REPORT

Transitioning from your nine-to-five career to becoming a business owner after 50 may sound enticing, with the freedom to set your own hours and profit from your passions. But midlife entrepreneurship comes with financial risks, too. Here’s how to manage them and set yourself up for success:

Be Mindful of Your Financial Commitment

Since you’ll need to continue saving for retirement or live on your current fixed income in retirement, it’s crucial to establish a budget for how much you can, and will, invest in your business. Ask yourself these questions:

  • How much money am I able to invest without taking on debt?
  • How much revenue do I need to be profitable?
  • What other financial commitments and expenses do I have? (e.g. insurance, mortgage, utilities, travel)

You may need to dig into your financial statements and do some research to get these answers. But putting in the time to do so will help prevent you from endangering your financial future. And before starting a business, get your debt paid off, says Chane Steiner, CEO of the personal finance site Crediful.

5 Funding Ideas for a Midlife Business

Once you’ve determined your monetary limits, consider the five funding ideas Business.com recommends: Bootstrapping, personal loans, government or venture capital, crowdsourcing and retirement accounts.

Bootstrapping If you own the right equipment and have the knowledge to launch your business without help, use your own capital for initial costs. Just bear in mind that doing so will likely limit your financial ability to hire employees or invest in marketing.

You can use crowdfunding platforms to create an online fundraiser and then share the crowdfunding campaign link with family members and friends through email, social media and virtual marketplaces such as Craigslist to drive donations.

Rob Stephens

Says Rob Stephens, founder of CFO Perspective, a small business advisory site: “The question I would ask is ‘How much money can you lose and still live the retirement you want to live?’

Steiner suggests leaving “six months’ worth of expenses in savings, in case things tank.”

Personal loans If you need money to buy materials, hire staff or contractors, or pay for advertising, borrow funds with a personal business loan. It will most likely have a lower interest rate than if you charged the expenses on a credit card.

These days, the rate for a personal business loan is often 4% to 6%, according to the ValuePenguin personal finance site. By contrast, the average credit card rate is about 17%.

Government or venture capital The U.S. Small Business Administration (SBA) offers two ways to get a loan: federal lending institutions and venture capitalists.

The SBA’s free Lender Match program connects small business owners with SBA-approved lenders. Or you can find a private investor through the SBA’s Small Business Investment Companies network.

Crowdfunding Websites like Indiegogo, Kickstarter and GoFundMe make it easy to generate awareness for a business idea and turn public interest into financial support.

You can use crowdfunding platforms to create an online fundraiser and then share the crowdfunding campaign link with family members and friends through email, social media and virtual marketplaces such as Craigslist to drive donations.

Retirement accounts While borrowing against funds in your 401(k) should be a last resort, it can provide more control of your money than working with a lending institution.

And you can transfer funds from a personal retirement account into a new 401(k) formed specifically for the business. This avoids extra debt and tax penalties, but it could also risk your savings. So, talk to a financial adviser if you are considering this route.

Kenny Rose, founder and CEO of Semfia, an investment advisory firm, says Rollover for Business Startups (ROBS) can be one way to jump-start yourself. ROBS “allows you to do a partial rollover from a retirement account as your cash injection to get your business started — tax-free and penalty-free,” he says.

The ROBs strategy, Rose adds, can let you use pre-tax funds, avoid eating into your savings and invest in your next career.

Continue to full article as originally appeared on Next Avenue.

 (This article is part of America’s Entrepreneurs, a Next Avenue initiative made possible by the Richard M. Schulze Family Foundation and EIX, the Entrepreneur and Innovation Exchange.)

By Jessica ThiefelsJessica Thiefels is founder and CEO of Jessica Thiefels Consulting. She’s been writing for more than 10 years and has been featured in top publications like Forbes and Fast Company.  She also regularly contributes to Virgin, Business Insider, Glassdoor, Score.org and more. Follow her on Twitter @JThiefels and connect on LinkedIn.

OppLoans: Retirement Alternatives to a 401(k)

Article originally appeared on OppLoans.


Retire in something resembling style.

Throughout history, humanity has experimented with many different kinds of retirement plans. The earliest retirement plan was the “no-one-lived-past-their-30s” plan. While this had the advantage of not actually requiring any planning, it did not leave much time for relaxation.

Later, if legend is to be believed, putting the elderly out to sea on an ice floe gained some popularity. However, with arctic currently melting, this retirement plan is less viable than ever.

Since 1978 the 401(k) account has become a common solution for building retirement funds. 401(k) plans are investment accounts offered by employers as part of their benefits package. Employees can direct a small percentage of their pre-tax income into these accounts and their employer will match a portion of those funds.

But many jobs do not offer a 401(k). Perhaps your job does not. If that’s the case, how can you avoid being put out on the proverbial ice floe when you reach retirement age?


When you want something done right…

There are tax-advantaged retirement accounts you can open on your own that are separate from an employer-provided plan . You will not receive the benefits of that employer matching your contributions (unless you are remarkably persuasive), but it is likely better than nothing.

“Individual retirement accounts give anyone the option to save for retirement outside of an employer plan,” offers Sam, who writes about early retirement with her husband at How to FIRE. “You could open one at a brokerage firm like Fidelity or Vanguard. However, the IRS does have income requirements and contribution/distribution limits that you should be familiar with. Roth IRAs grow tax-free and traditional IRAs grow tax-deferred. If you are married and one of you does not work outside the home, you may even have the option for a spousal contribution.”


Property possibilities

If you want your retirement investments to be more tangible, you could consider putting money into property. Unfortunately, this will require you to have quite a bit of money already saved up. There are a few upsides if you can manage it, however.

“Rental properties complement stocks and more traditional retirement accounts extremely well,” says Brian Davis, co-founder of SparkRental.com. “To begin with, they generate ongoing passive income … Rental returns adjust for inflation automatically, as well. Not only do rents rise alongside inflation, they are a primary driver of inflation, and often rise faster than the broader inflation rate.”

While the money you put into the property will likely be subject to taxes, property ownership has its own sets of carve outs.

“They offer tax benefits, with every conceivable expense deducted from your profits,” Davis explains. “Even some paper expenses like depreciation are deductible. Taxpayers do not have to itemize their deductions to take advantage of these deductions, either – they come off your rental income before it is added to your adjusted gross income.”


Getting into the franchise game

Have you ever fancied yourself a business owner, but you just are not able to do it full time? Well you may be able to get into the franchise game as an investor.

“Most investors are unaware that you are able to invest in a full-time or semi-absentee franchise tax free and penalty free with the Rollover for Business Startups (ROBS) program,” says Kenny Rose, founder and CEO of Semfia. “A semi-absentee franchise investment can be owned while working full time and can both build equity and produce a significant income. These are an out-of-the-ordinary investment that can also be paired with with a [U.S. Small Business Administration] loan to leverage pre-tax funds.”

Rose says the best way to approach this type of investment is to selectively pick your marketplace and do your research to vet different brands. “Although most people hear the word ‘franchise’ and go straight to food, the best way to reduce market risk is to look into recession-resistant industries like haircare, automotive, and fitness,” he says.

One caveat to be aware of is the time commitment. Even though it may not require your full time attention, investing in a franchise is not a completely hands off endeavour.

“Unlike other typical 401(k) investments, franchises are not passive money earners,” Rose warns. “Even for a semi-absentee investment you will need to manage a manager for 5 to 15 hours per week. Newer trends for semi-absentee are for nonworking spouses and recent college graduates to handle overseeing the management with the franchise structure.”

One other risk of note about small business loans: Know that your personal credit may impact your ability to get a small business loan, and a small business loan can impact your credit report, as well. Always make sure you understand the ins-and-outs of taking out any type of personal loan or business loan before moving forward with a money-borrowing decision.


If all else fails…

You may not have access to a 401(k) through your job. You may not meet the requirements for individual tax-free accounts. You may not have the money to invest in property or a franchise. But you can still do your best to put away money for retirement.

“Saving for retirement can be intimidating when you know that there are penalties for distributing the money before you are eligible,” Sam says. “If you would like more flexibility with your money, consider opening a taxable account. You can still earmark the money for retirement, but also use it without penalty before your golden years. Just be mindful that you won’t have the same tax advantages that retirement accounts offer. Any option to get you saving is better than not saving at all.”

It is not easy to think about retirement while you are dealing with so many daily expenses. But if you can make it a habit to regularly put aside retirement money, it should make a big difference later on.


Contributors

G. Brian Davis is a landlord, personal finance writer, and co-founder of SparkRental.com, which provides free video courses and rental investing tools for landlords. He spends most of the year overseas, splitting his time between Abu Dhabi, Europe, and his hometown of Baltimore.
Sam blogs about personal finance and financial independence at How To FIRE. She uses her Bachelors in Finance and MBA degree to help others get control of their finances through budgeting, saving, investing, and side hustles. For more information, visit her @HowToFIRE.
Kenny Rose is the founder & CEO of Semfia, a franchise brokerage to provide education and guidance on investing locally through semi-absentee franchise ownership. Rose founded Semfia after working in finance at Merrill Lynch and also spending time in the franchise industry. He realized that people want to hold a franchise business as an investment and not a full-time job, but they can’t get past that pesky F-word. A graduate of San Diego State University’s Top 10 Financial Services program, he has appeared on ABC, in the Amazon Best Seller “More Than Just French Fries,” and has been a featured speaker for the U.S. Small Business Administration, Small Business Development Centers of America, and SCORE. Follow him @InvestLocally.