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If You're Considering Entrepreneurship at Any Age, Business Planning Is a Necessity
The Ewing Marion Kauffman Foundation released a study in June
entitled "The Coming Entrepreneurship Boom" that
credits entrepreneurship as a major force that will bring the
current troubled economy back to health. The twist, however, is
that Baby Boomers — ranging in age from 45 to 63 — are expected
to be in the vanguard of this movement.
It's a particularly interesting demographic to be leading
such a wave of startups, though not a complete surprise. After
all, the oldest Boomers are on the cusp of retirement yet unable
to retire due to shrunken portfolios. At the same time, they are
not exactly the most attractive job candidates in the market due
to age. So, many are exploring a third option — starting their
own companies.
Before any firm decisions are made, however, individuals not
only need to examine their personal and potential business
finances but also the considerable lifestyle changes
entrepreneurship can bring. One of the first stops on that
learning curve should be to financial and tax experts. By
working with a CERTIFIED FINANCIAL PLANNER™ professional, any
individual can get an overview of their financial and personal capacity
to make such a new enterprise work. You can then work with tax, estate
and investment experts to make sure a new business career is on
a sound footing.
Here are some basic strategic and financial steps to follow
in starting a business:
Start writing your business plan. There are some
people who tell you that a business plan is necessary for a new
company only if you want to borrow or seek investors for a
startup. The truth is that sitting down and writing a formal
business plan is an excellent way for anyone to examine the
idea, structure and money sources for their business concept and
most important, the potential of profit from the idea. One of
the best places to get the basics of the business planning
process is the U.S.
Small Business Administration's Small Business Planner
website.
Branch out for specific advice. You need not one, but
two sets of financial advice when starting a business. The first
involves the viability of your business concept. You should
understand your business idea inside and out before you launch
and what your new company's immediate and long-term cash needs
will be. The second set of advice involves your own finances and
how prepared you are for what will surely be a major lifestyle
transition. Because new business owners frequently underestimate
their new business's expenses starting out, they can find
themselves funding those business needs out-of-pocket. That
means less money for day-to-day living expenses as well as
long-term planning for retirement. That's why it's critical to
consult a tax advisor as well as a CFP® at the outset.
Get rid of your debts. With the possible exception of
mortgage debt, there's very little "good debt" in the
life of a businessperson. So while you're researching your
business concept and putting together your own financial plan,
start cutting back and erasing as much credit card and
adjustable-rate debt from your personal life as possible. The
continuing credit crisis is making it tough for any business
owner — even experienced ones — to borrow money at attractive
rates. You'll have the most flexibility when you owe as little
as possible.
Work on your emergency fund. While it's wise for
everyone to have 3 to 6 months of cash set aside for basic living
expenses in case they lose their job or face a medical
emergency, emergency funds are particularly necessary for new
business owners. Startups can be particularly expensive, and
most businesses are not profitable from day one. Plan a more
extensive emergency fund for yourself and for the business as
well.
Plan your healthcare and other basic benefits.
Automatic benefits are the plus side of working for someone
else. When you're working for yourself, you become your own HR
department and chances are you won't be able to match your old
employer's buying power. If you support a family with these
benefits or if you have particular health concerns, you need to
price the out-of-pocket costs of such benefits before starting
your own company — depending on the business and the cost of
those benefits, you might want to rethink your plans.
Price disability coverage now. You might have
short-term disability coverage as part of your current employee
benefits, but that will likely end once you quit your job. You
should price long-term disability coverage based on your present
working salary so you can qualify for the highest possible
benefit. Disability coverage is critical for self-employed
people since they're their own support system.
October 2009 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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