What does the typical entrepreneur look like? If you are like most people, you probably picture someone in his or her 20s. Maybe someone who is fresh out of college or maybe even still in college. Right?
Wrong. According to the 2014 Kauffman Index of Entrepreneurial Activity, the largest age group for entrepreneurs is 45 to 54, and it is growing. In fact, the percentage of 40- to 50-something entrepreneurs increased from 25.2 percent in 2003 to 30 percent in 2013. The Kauffman Foundation also reports that people 55-65 started 23.4 percent of all new companies in 2013.
Other studies back that research up. The Kiplinger Report predicts that Baby Boomer entrepreneurs, including those Americans at or near retirement, will launch 25 percent of businesses by 2020. Of the 500 recent applicants for an entrepreneurship program funded by the U.S. Labor Department, the average age was 51. A survey by MetLife Foundation found that 25 percent of Baby Boomers planned to launch a business or nonprofit within 10 years.
So what’s going on here? A few interesting trends are coming together. First, as they have done throughout their lives, Baby Boomers – those born between 1946 and 1964 – continue to set trends. According to the U.S. Census Bureau, roughly 28 percent of the current population is comprised of Baby Boomers, and the Bureau projects that this demographic will total 61.3 million in 2029, when the youngest boomers reach age 65.
Secondly, many health-conscious and active Baby Boomers are simply not ready to retire. In fact, Baby Boomers are redefining old age. According to a survey by Pew Research, the average Baby Boomer believes old age doesn’t begin until the age of 72, and the majority of those Boomer surveyed said they feel at least nine years younger than their actual age.
Whether it is by choice or by a forced retirement age at their current job, these Americans are looking to change up their lives by turning a passion or a hobby into a new career. They are taking their skills and lifetime experiences and putting them to use in new and exciting ways.
The Boomer Report, a part of MBO Partners’ Independent Workforce Index, reports that about 60 percent of Boomer entrepreneurs said they like being challenged and the freedom of being their own boss. About 56 percent said they hoped to make an impact on society.
Another reason older entrepreneurs are common these days has to do with pure dollars and sense. Many Baby Boomers lost a significant part of their retirement savings in the recent recession, and they need to continue working in order to support themselves.
If you are considering launching a new business as an over-40 first-time entrepreneur, here are a few important tips for getting started.
Make a Plan
Although home-based businesses are less expensive to launch, the average new business costs more than $30,000 to get off the ground, according to the Kauffman Foundation. In addition, it can take 18 months or more for many startups to become profitable.
Develop a clear business plan that includes profit projection and an operating budget. The Small Business Administration website offers a step-by-step business plan guide.
Consider Financing Carefully
Melinda Emerson, author of the book Become Your Own Boss in 12 Months, recommends having three different pools of money before launching your business. These are: a year’s worth of working capital, an emergency business savings account and an emergency personal savings account with six to 12 months of living expenses.
While you may be able to get a small business loan, be wary of taking on debt to get your business launched. Some older entrepreneurs are able to finance their new businesses using retirement savings through ROBS, or rollovers as business startups. With these ROBS, you can use money from your IRA or 401(k) account to invest in your own new business without incurring tax penalties for early withdrawal.
The tax rules for these rollovers are tricky, so be sure to talk with your accountant or financial advisor.
Raiding your retirement funds is risky, since, let’s face it, you won’t have as much time as a younger person does to recoup any losses.
In addition to the question of funding your new business, you will need to decide how to structure your company. Your attorney and financial advisor can help you determine whether a sole proprietorship, an LLC, a corporation or another type of entity best suits your needs. This advisor also will inform you of the tax implications of these decisions and of any licenses and permits you may need.
Advice can also come in the form of all the business and personal contacts you have developed over the years. Use those connections to help you obtain any technical skills or experience you may lack and to help you land your first customers.
Finally, the best advice may be simply be to go for it. “Regardless of how you have arrived at this point – displacement, pending or current retirement,” writes Mary Beth Izard in her book BoomerPreneurs, “now you have the opportunity to decide what you want your life to be from here on out, as you ask yourself ‘What now?’”