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Encore Entrepreneurs: The Guide to Starting a Business Later in Life

Priyanka Prakash

Senior Staff Writer at Fundera
Priyanka is a senior staff writer at Fundera, reporting on business financing, law, and news. Previously managing editor at Fit Small Business, she's also a licensed attorney who served as general counsel at a Y Combinator tech startup. She loves helping entrepreneurs launch, run, and grow their businesses.

The last time you walked into an independently owned bookstore or cafe, or even your local McDonald’s, chances are good that a baby boomer owned the business. According to nonprofit group Project Equity, individuals born between 1946 and 1964 own over 2.34 million small businesses, employing almost 25 million people nationwide.

Instead of retiring, many older individuals are becoming entrepreneurs. In a study from MetLife Foundation, one in four Americans ages 44 to 70 expressed interest in starting their own business or nonprofit in the next five to 10 years. If you’re interested in becoming an “encore” entrepreneur—or a second-career entrepreneur, as some call them–you’ll face a mix of opportunity and challenge.

On the one side, encore entrepreneurs make great founders because they have experience, connections, and valuable business skills. In fact, the respondents in the MetLife study who were interested in launching a business had an average of three decades of work experience and more than a decade of management experience. But on the flip side, the older you are, the more important it is to be conservative with your resources and plan for any eventuality.

Arming yourself with information is the key to success as an encore entrepreneur. We’ll cover all of the steps to business ownership as a second career, plus you’ll hear from people over the age of 50 who made their dreams of entrepreneurship a reality.  

Step 1: Figure out Why You Want to Become an Entrepreneur

Figuring out your motivation for starting a business is important from the outset. As you age, the financial risks of business ownership become higher, so you need to have a clear reason for putting yourself out there and a clear plan for success. Plus, when things get really challenging, your motivation will inspire you to keep going.

People who become encore entrepreneurs are usually inspired by one of the following:

Pursuing a Hobby or Passion

Many second-career business owners go into business to pursue a passion or hobby. If you know you want to start a business but are unsure as to what kind, looking to your personal interests might give you a business idea.

encore entrepreneurs

Doug McQuilken, who is in his late 60s and the owner of Boat Used Part Search, worked as a software developer for many years, but his boating parts business grew out of a retirement hobby:

“I had been performing software-related work in a variety of industries and roles until 2015. I sort of stumbled into my current business because I wanted to learn wooden boat building skills as a retirement hobby. Once I got started with a project boat, I needed parts. In my honest opinion, the available methods were less than effective, so I constructed my own solution—essentially a Google-like search engine for used boat parts. There are 10 to 12 million boat owners who are, or will, be in my situation.”

Lisa Powell is an independent contractor who provides pet care services through Rover, after a 20-year career as a corporate accountant. Her business grew out of a love for animals:

“I am a full-time pet sitter who offers affordable and reliable pet services while keeping pets happy and healthy at home. My company provides dog walking, drop-in visits for most type of animals, and in-home boarding. I decided that I was done with the corporate life and wanted to do something I am passionate about while helping others.  I have always been an animal lover and I recalled from years ago my grandmother saying I should be a vet, so my idea just spun off of that.”

Both Powell and McQuilken’s cases show that you can create a business from almost any personal interest or hobby that you might have. And in McQuilken’s case, his background in tech helped him launch his current business.

Contributing to an Industry

Many encore entrepreneurs launch a business in the same industry that they’ve worked in for years. As employees of other companies, they often discover an inefficiency or market need that no one is adequately addressing.

Mark Anderson, 61, is the founder of Anderson Investigative Associates, which provides interview and investigation training for auditors, human resource professionals, and inspectors. Anderson wanted to provide a solution that he felt was missing in his industry:

starting-a-business-later-in-life
“My company was born out of 30+ years as an investigator and manager. I recognized the lack of quality, accessible interview training, especially for interviewers outside the realm of investigations.

There is a prevalent misconception in management that if you can talk to people, you can interview. There also is a wealth of poor training with little empirical data to support it. I love to teach and wanted to make a difference with the next generation of interviewers.”  

If you’ve been in a certain field for several years, you can use your knowledge to your advantage when launching your business and acquiring clients. A track record can help you achieve success faster than a younger entrepreneur who is just starting out.

Gaining a Supplementary Source of Income

Some baby boomers start businesses as a source of income. This isn’t surprising, as a quarter of boomers have saved less than $100,000 for retirement. And social security payments don’t help much. The average social security payment today is only $1,794.80, according to 2016 data from the Social Security Administration. To maximize social security benefits, you need to wait until age 70 to start claiming them, but even then, the monthly payment is only $2,158.22.

 

Age Average Monthly Social Security Benefit (in 2017)
66 to 69
$1,870.83
70 to 74
$2,037.56
75 to 79
$1,667.79
80 to 84
$1,620.28
85 to 89
$1,683.64
90 or older
$1,654.87

 

Based on where you live, who you live with, and your current health condition, you might need to keep working in your retirement years to earn enough money for living expenses. Becoming an entrepreneur allows you to be your own boss and get more control over your income.

Step 2: Figure out What Type of Business to Start

Once you identify your source of inspiration for starting a business, it’s time to figure out your business model. This includes where you’ll work from, your startup budget, and whether you’ll be a solopreneur or bring on a business partner.

These are some of the best business models for encore entrepreneurs:

Freelancing and the Gig Economy

Although some encore entrepreneurs want to work full time, many think of their business as more of a side gig. They want flexibility to spend time with family, travel, and pursue hobbies.

Freelancing is a flexible career opportunity that can be perfect for second-career business owners. As a freelancer, you can set your own hours, work from almost anywhere, and take on clients whenever you want. Instead of receiving a salary, you bill clients on an hourly or per-project basis. A variety of industries are well-suited to freelancing, such as marketing, web design, copywriting, technical support, and accounting.

Gig economy platforms like Uber, Lyft, and TaskRabbit make it easier than ever to be a freelancer because you have access to a ready stream of customers.

Sabrina Hartel is a 45-year-old Uber driver in Chicago and loves the flexibility of the job:

encore entrepreneurs

“I’m 45 years old, and I became an Uber driver after working as an advertising executive for large media companies. I left the industry a few months ago to earn money while pursuing my passion as a textile designer for a home decor line.

Being an Uber driver, I make $100 to $200 per day. I love the flexibility of the hours. I work when I want. I will continue to drive with Uber to finance my business. I have been an Uber driver for 1.5 years now, full time.”

As Hartel’s case illustrates, a freelance business is a legitimate business. Even though you have more flexibility about when and how you do your work, you should treat your business seriously. Get business licenses you need to operate, maintain proper books, and consider incorporating your business. Most freelancers start out as sole proprietors, but if they begin generating significant income, they upgrade to an LLC, corporation, or other type of registered business entity.

Franchise Ownership

With a regular business opportunity, it’s your responsibility to create the product or service from the ground up and do all the work. Franchising offers an easier transition to entrepreneurship, making it a great opportunity for second-career entrepreneurs. In fact, franchising is already a popular option among baby boomers.

A franchise has a proven business model that is already in place, and the parent company takes care of much of the work for you, including:

  • Leasing the business space.
  • Developing the product and service mix that you offer to customers.
  • Managing the brand and getting publicity for it.
  • Creating uniform marketing materials, such as signage and commercials.
  • Providing technical support, advice, and training for the franchisee.

As a franchisee, you’d be responsible for day-to-day administration. For example, you’d have to ensure that your location is properly staffed and help customers select and purchase the goods or services.

David Weaver, 51, owns several branches of The Catch, a seafood restaurant franchise in Texas and Oklahoma. He’s been a lifelong franchise owner but sees clear advantages to owning one during older age:

“Owning a franchise now versus when I was 21, the main difference is the time I had to put into operations. Back in 1988, when I started, the restaurant space was a lot less crowded, and I worked open to close almost every day. Now, I am much more reliant on the management and the crew for operations. I have a broader scope of interests outside of business and a self awareness that I don’t have unlimited time to put into a project.

Another advantage is capital. Whether it’s because you have retired from your first career or have access to 401(k) money, the point of entry is easier. The less you borrow, the higher the percentage of success.”

If you’re considering franchise ownership, the best place to start is to get as many details as possible from the franchisor. Request the franchise disclosure document (FDD), a document that franchisors are required by law to give to a prospective franchisee. This document contains details about the budget you’ll need to run the franchise, the franchise’s revenue history, and other important information you need to make your decision.

Also, keep in mind that franchises vary significantly in terms of the investment and resources required. For example, the fast food franchise Golden Corral only works with franchisees that have a net worth of at least $2.5 million. On the other hand, home-based franchises often require an initial investment under $50,000.

Start a Brick-and-Mortar Shop

A more conventional option is to start a brick-and-mortar shop. This requires a bigger investment of time, resources, and money. For one thing, you need to live in an area that’s close to the shop, and keep the shop open for enough hours to gain a customer base. You’ll also have more overhead costs and additional responsibilities, such as paying rent (or a commercial mortgage) and designing your space.

When considering a location for your business, don’t overlook urban zip codes. These areas have a higher cost of living but also drive more foot traffic. Recent research from the AARP shows that more and more baby boomers are moving from the suburbs to urban areas. And as the graph from the Census Bureau below illustrates, the likelihood of living in a rural area declines with age after reaching age 50.

encore entrepreneurs

Step 3: Figure out Where the Money Is Coming From

The next big question is where the money for the business is going to come from. In the later stages of life, it’s important to be especially conservative with your resources. Self-funding a business isn’t an option for most though, so you’ll have to take out a loan or get a little creative in your financing strategy.

We strongly recommend that encore entrepreneurs don’t use retirement money for business purposes. The older you are, the riskier it is to pour retirement money into a business. Nearly one-third of small businesses fail within two years, and if your business doesn’t pan out as expected, then you can end up losing your retirement nest egg. That’s not a position you want to be in when you’re already nearing or at retirement age. If you lose your nest egg now, you won’t have enough time to build it back up.

Fortunately, there are better alternatives to raising money as a second-career entrepreneur. Here are some options to consider when searching for financing:

SBA Loans

If you’ve started a search for business financing, you’ve probably come across SBA loans. These are excellent for small business because they offer long terms, low interest rates, and manageable monthly payments.

These loans are difficult to qualify for, especially if you’re just starting out in business. Credit score is the number one factor that determines whether you qualify for or get denied for an SBA loan. Your chances of approval are highest if you have a 700+ credit score. Fortunately, the older you are, the more of an advantage you might have. A study by FICO found that individuals over age 60 have an average credit score of 743, a full 72 points higher than the 30- to 39-year-old age group.

Older entrepreneurs have other factors working in their favor, as well. As an older entrepreneur, you probably have more to offer in the way of collateral. More than 75% of individuals over the age of 55 own their homes, versus less than 35% of individuals under age 35. If you can offer your home, car, or other valuable asset as collateral, that will help you qualify for an SBA loan.

SBA loans are easier to come by if you’re buying a franchise. Nearly a quarter of SBA loans go to franchises. Lenders prefer extending SBA loans to franchises because franchises have a proven business model and predictable revenue history. Just make sure that your franchise shows up in the SBA’s franchise directory. This is required to process an SBA loan for a franchise.

Business Lines of Credit

A business line of credit is another option for entrepreneurs in search of financing. This is a good solution when you’re unsure of what costs you’ll face in starting your business. A business line of credit provides access to a preset amount of money that you can draw on from your bank account as needed. The key is that you only pay interest on the money that you draw, up to your credit limit. And when you pay back what you’ve borrowed, the credit limit resets.

You can obtain a business line of credit from a bank or from an online lender. Lenders will consider your credit score, and if the line is secured, they will also consider the amount of collateral you have to bring to the table.

Microloans

If you don’t need much money to start your business—less than $50,000—then a microloan can help you achieve your entrepreneurship goals. Banks and smaller nonprofits provide microloans, and there is also an SBA Microloan program. These lenders provide startup capital and evaluate applications based on credit, expected cash flow, and collateral.

The interest rates on microloans aren’t as low as you’ll find on an SBA loan or bank line of credit, but the rates are still affordable. Because nonprofits are the main lenders, microloans are an especially good option for older women and people of color.

Business Crowdfunding

Business crowdfunding allows you to post about your business’s products or services online, and receive funding from the public. You’ve probably heard of Indiegogo and Kickstarter, two of the most popular crowdfunding platforms. On these sites, you can raise money for your business in exchange for providing free samples, discount coupons, or other rewards. Another type of crowdfunding, called equity crowdfunding, requires you to sell small pieces of ownership in your business to the people who are funding you.

Crowdfunding can be a good option for encore entrepreneurs because your success relies on a good story. Before you can receive money, you have to describe your business, post photos and videos of your product or service, and humanize your business as much as possible.

Tech savvy, older entrepreneurs have been successful at raising money via crowdfunding. Take 89-year-old Pearl Malkin, who raised more than $3,500 from a Kickstarter campaign for her company Happy Canes, which makes a line of fancy, decorative walking canes. If “Grandma Pearl” can do it, so can you!

encore entrepreneurs

Equity Financing

One final option for encore entrepreneurs is to seek out equity financing for your business. Venture capitalists and angel investors invest money into companies in exchange for receiving a portion of ownership in the business.

Your age and experience can give you a leg up with investors. With age comes a wider network and more connections, which are key to finding investors. The average owner of a high-growth startup is in their 40s. In some industries, the average age exceeds 50 years old. And, as age increases, so does the performance of the company, making investors more likely to take notice.

Step 4: Learn the Business Side and Industry Requirements

One area that encore entrepreneurs often struggle with is learning the operational side of their business. If you are starting a new business in the same industry that you’ve worked in for many years, then you built up a huge repository of knowledge and experience. But there are a lot of other responsibilities that come with running a business that you’ll have to master as well.

To be successful as an entrepreneur, you have to constantly exercise the learning side of your brain. Expect to invest a lot of time upfront taking courses and learning new things, but you’ll also find that this is an ongoing process.

Anderson, the investigative trainer, says,

“I’m still learning the business side and likely will be until I drop dead! I have some mentors and colleagues I connected with at the outset, some I knew personally and some I met and developed relationships with. They have helped immensely.  

I hired support in the website/email area from a provider, and I hired a website designer. I think there is an incredible dearth of providers on the internet, but I have taken tons of webinars regarding podcasting, blogging, webinars, etc. The tough thing is that so many of them are very general or focused solely on ecommerce. I want the internet contact with clients, but the in-person delivery of services.

I think the struggle is that we are a small niche business, and my main focus is not growth. There are plenty of large firms out there that really don’t meet the needs of individual clients. That is what I focus on. I want to make a difference. A reliable stream of clients is what I am looking for. I’m not looking to grow exponentially.”

As Anderson did, you’ll likely find yourself at the cross hairs of operational problems pretty frequently. These are some of the operational “details” that you’ll have to contend with sooner or later:

  • Creating a business logo, signage, business cards, and other brand collateral
  • Creating your website
  • Recruiting, interviewing, onboarding, and payroll process (if you plan to hire employees)
  • Marketing and customer acquisition
  • Publicity
  • Making sure you comply with any legal requirements for your location or industry
  • Bookkeeping and tax filing

One of the best ways to engage in lifelong learning is to connect with a mentor in your industry, either online or offline. When you run into something you’re unsure of, they can be your go-to person for help.

You should also join social media groups, follow blogs, and read up on as much as you can in your industry. Find out what are the important tools, resources, and trends you need to know in your industry, and make sure you learn as much as you can about them.

Step 5: Plan Ahead for the Future

Second-career entrepreneurs have advantages in many ways, but it’s important to be realistic, as well. As an older individual, you have fewer years left in life and need to plan for the eventuality that you could pass away or become disabled. A written transition plan and proper insurance can help you with planning. Let’s go through each in more detail.

Draft a Transition Plan

A transition plan, also sometimes called a succession plan or business continuity plan, outlines what will happen to your business and who will run your business if and when you’re no longer able to. In a recent survey by CMI Research, 96% of business owners agreed that having a transition plan was important, but only 13% actually had one in place.

Developing a comprehensive transition plan typically requires you to hire an outside consultant, CPA, or business attorney. They will bring an outside perspective to your business that’s invaluable to creating a proper agreement.

According to attorney Elizabeth Whitman, “A business succession plan is something the owner should develop to assure long-term sustainability of the business. The best business succession plans include not just plans for transition of ownership of the business, but also plans regarding who will assume key management positions if the incumbent leaves or is unable to continue.”  

Whitman recommends including the following types of provisions in a transition plan:

  • Identify key employees of the business who can step into leadership positions when necessary, and develop a training plan for those employees.
  • Address different interests of potential stakeholders or inheritors. For instance, with a family business, some heirs might be interested in owning and working for the business and others might prefer to be bought out.
  • Evaluate existing business debt and key contracts to ensure that the transition does not result in a default.
  • Update contact information for key members of the business and business stakeholders.
  • Plan for a formal business valuation.
  • Consider financial, tax, and accounting best practices for the business.

Jack Hillis, the CEO of independent wealth advisory firm Hillis Financial Services, is 74 years old. He realized a couple of years ago that he needed a succession plan in place to protect his clients and family should he retire or something happen to him. Here’s more on Hillis’s strategy:

“The primary focus of my succession plan is to continue working, while having a safety net in place to protect my family and clients. I opted to do this by lining up the future acquisition of my company, Hillis Financial Services, by CalBay Investments. The date of the acquisition’s execution is fluid.

I entered into an agreement with Mike Allard, CEO of CalBay Investments, stating that he will buy out my firm upon my decision to retire—which won’t be for a while. In the event I become incapacitated in any way, Mike will immediately take over the company. If something happens to me prematurely, I know there will be a steady flow of income going to my wife. Additionally, I know my clients are in good hands.”

Even if you plan to run your business for many years to come, a transition plan is essential. It should contain a blueprint for how you will exit the business and whether and how the business will continue in your absence. A good business owner thinks long term, and your transition plan is a reflection of that.

Key Person Insurance

Key person insurance is another important element in your succession plan. Key person insurance helps your business continue with minimal interruption if you or another key member of the business passes away or becomes disabled. It is basically life and disability insurance on the business owner or key executive.

When a key person in a business can no longer be present, it can be a huge blow to the company. You lose money from customers or employees who jump ship, and you lose time from having to train new staff. Key person insurance covers these financial losses, so that the transition to new ownership is as smooth and fast as possible.

The premiums on key person insurance can range from as little as $100 per year to as much as $1,000 or more per year. The cost varies based on the amount of coverage, your current age and health, and the industry.

Encore Entrepreneurs Have Many Advantages, but Need to Plan Well

Becoming an encore entrepreneur can be both the biggest opportunity and challenge of a lifetime. If you are launching a business later in life, there are several things working in your favor. You have more experience and knowledge to draw from, more connections to help you get going, and more money stocked away to help you achieve your goals.

But, there are also additional considerations. You could face a steeper learning curve. And as an older individual, you’ll have to plan for the future by putting together a solid continuity and succession plan and purchasing insurance.

When things get really challenging and you feel like giving up, draw inspiration from your motivation for starting a business in the first place. Learn from your wins and losses, and focus on running a thriving business!

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Priyanka Prakash

Senior Staff Writer at Fundera
Priyanka is a senior staff writer at Fundera, reporting on business financing, law, and news. Previously managing editor at Fit Small Business, she's also a licensed attorney who served as general counsel at a Y Combinator tech startup. She loves helping entrepreneurs launch, run, and grow their businesses.

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