A recent report on entrepreneurship by the Kauffman Foundation showed that people 55-64 years old experienced a large increase in business-creation rates from 2008 to 2009. Starting a business over 50 is not uncommon anymore. But it can be a lot more complicated than becoming a business owner in your 20s or 30s. Over 50, many people have property, retirement savings, college funds, and other assets that could be put in danger if the business goes bad.
John Gerber, founder of www.UpstartLegal.com, provides the following tips to people starting a business over 50:
1. Protect Your Retirement. One advantage of starting a business later in life is that the entrepreneur may be in a position to finance the business through funds accumulated over the years, such as a retirement plan. Sometimes, funds in a 401K , for example, can be used to finance the startup of a business without incurring withdrawal penalties. Additionally, the entrepreneur may have personal assets, such as home equity, that can be tapped as collateral for a loan. This can be a two-sided sword. Both options put the entrepreneur’s “nest egg” at risk if the business is not successful. So while these financing options offer an opportunity that may not be available to younger entrepreneurs, they need to be balanced against the risk of losing assets that may be difficult to replace.
2. Be Careful with Family. Many new business owners over 50 go into business with family. This could include a spouse, sibling, or child. While this may be very rewarding personally and professionally, there are also some potential legal pitfalls. Make sure to have a partnership agreement at the outset. It should outline ownership, responsibilities, and what happens if one partner is no longer involved (voluntarily or otherwise) or the partners have an unresolvable dispute about the business. If family is not involved in the partnership, they may still do work for the business. Make sure to have clear employee or subcontractor agreements in place to avoid conflicting expectations and future problems.
3. Plan for the End. A new business owner over 50 needs to establish an exit strategy – basically a business will. There are 2 key parts to this. First, how will s/he derive value from the business after s/he is no longer active in it? Can the business be sold? Is there a family member who should take it over? Or employees? Second, what will happen to the business if the owner is no longer living? Who makes decisions about its operations and/or disposition? The business owner needs to plan for the transition on retirement or death and to put legal succession and estate plans in place for these possible situations.
John Gerber is a corporate attorney who has provided strategic legal services to new and growing businesses for almost twenty years. By founding UpstartLegal.com, John found a way to extend his extensive professional expertise as a corporate attorney, executive manager and business builder, and his passion for supporting entrepreneurs and growing businesses, to new businesses outside of his local practice area.