Today’s young adults have grown dissatisfied with the conventional career path. Unlike previous generations, they don’t seek the stability of working traditional hours at the same place for decades on end. To them, this lifestyle seems boring, unfulfilled, and void of passion. Many older individuals feel the same way about retirement. Rather than keeping the same job until retirement or retiring at all, an increasing amount of older individuals are pursuing entrepreneurship. Why not put their wealth of knowledge and newfound interests to good use? Their first careers were likely the most logical choice at the time. Now, they have the chance to truly do what they love and rekindle the excitement of their youth. Their age offers numerous advantages and disadvantages to becoming an “encore” entrepreneur or “second-career” entrepreneur.
One example that we’ll delve into later on is the degree of risk involved. Encore entrepreneurs must be more conservative than their younger peers in terms of how they use their resources and plan for the future. And with so much experience under their belt, encore entrepreneurs will likely take a more calculated approach to business growth. That’s yet another reason to pursue entrepreneurship later in life: The chance to start another career without making the same mistakes.
In this guide, we’ll go over the most important steps to becoming an encore entrepreneur as well as the key decisions that have made a myriad of encore entrepreneurs so successful.
Step 1: Why Do You Want to Become an Entrepreneur?
Becoming an encore entrepreneur for the wrong reasons can have serious financial consequences. Younger entrepreneurs have more time in front of them and can afford to fail several times before striking it big. So, if you’re considering becoming an encore entrepreneur, you must be 100% sure that your motivation has the strength and longevity to make this at-bat a home run. You must have a clear goal as well. These things will carry you over the inevitable obstacles you’ll face as you start and grow your business.
Most encore entrepreneurs started their businesses for the following reasons:
Pursuing Your Passion or New Hobby
It’s extremely common for people to take on new hobbies as their interests change with age. Growing older gives you a new respect for different crafts, even those you couldn’t care less about when you were younger.
In some cases, the new hobby takes over the individual’s life. The focus and devotion that once went into their careers essentially gets transferred to their hobby. So, if you’re not sure what kind of business to start, think about interests that have only grown stronger over the years.
Examples include everything from cooking to working with animals to restoring cars. Let’s say you’re approaching retirement and decide to put your energy into the third example. But as you’re restoring your car, you realize that it’s unnecessarily difficult to find the parts you need. Someone in this situation might want to start a business that helps people who share your hobby (and you know there’s a lot of them) find used classic car parts. This idea would be especially sensible if the individual had a background in tech.
Fixing a Problem in Your Previous Industry
When you spend a long time working in the same industry, you begin to notice widespread problems that are going ignored. For this reason, many encore entrepreneurs start businesses to fix the holes that inhibited the success of their former employer and competitors.
Every industry has problems of this nature. Say, for example, your industry has a notoriously high employee turnover rate. Your former employer struggled to retain new employees, even those that seemed promising at first. No one else knows what’s causing this problem, but you’ve always known it was the screening and interview process. Thus, your business could revolve around a new screening and/or interviewing system that prevents companies from hiring the wrong people and unintentionally bypassing the most qualified candidates.
Compared to the other reasons for becoming an encore entrepreneur, this is easily the most logical. You know what companies in your industry like to see in potential partners and which issues matter most to them. Starting a business in a familiar field also makes sense because you already have a track record to entice potential clients/customers.
Creating Another Source of Income
In the past, it wasn’t difficult for the average person to build up enough savings to fully support themselves by the time they turned 70. Today, however, this is considered less of the norm and more of a luxury. Saving up over $100,000 for retirement isn’t easy, and social security only amounts to around $2,100 per month. Hence, many baby boomers who don’t wish to relocate must continue working to support themselves in their retirement years. If you have to work, why not be your own boss and spend your days on tasks that bring real fulfillment?
Step 2: Choosing Your Business Model
After solidifying why you’re starting a business in the first place, you can move on to choosing the type of business to start. This step forces you to answer important questions, like: Do you want to work from home? Do you want to work longer hours? Answering these questions will tell you how much you’ll need to start your business as well as what you’ll actually be doing every day.
Here are three of the most appropriate business models for encore entrepreneurs:
Freelancing businesses are one of the easiest businesses to start, which makes them the perfect choice for encore entrepreneurs. Unlike other business models, you’ll have the freedom to spend time with your family, travel, and enjoy the relaxation you’ve rightfully earned.
Freelancers usually make their own hours and work from home, billing clients by the hour or per-project. The only equipment you’ll need is your computer, and while most freelancers view their businesses as part-time gigs, you can certainly make just as much money as a traditional business owner. As long as you complete your projects on time, you can take days off as you please.
Industries that best suit freelancers include copywriting, marketing, graphic design, technical support, accounting, or virtual assistant services. When it comes to flexibility, however, nothing compares to rideshare drivers. Demand for rideshare drivers has only increased, and if you’ve been living in the same neighborhood for a long time, it’s safe to say you know your way around. Full-time rideshare drivers for companies like Uber and Lyft typically make anywhere from $100 to $200 per day.
The ease of freelancing often prevents freelancers from treating their businesses with legitimacy. As sole proprietors, freelancers might forget that they have to consistently put money away and keep track of their books for tax purposes. All home-based businesses also need home occupation permits and local business operating licenses. And once you begin generating a substantial income, you should almost certainly upgrade to an LLC to pay less taxes.
In summary, it’s very important for freelancers to stay organized. This will become much harder as you take on more work, which is why you should definitely look into popular apps for project management, customer management, and accounting.
Franchising allows you to run your own business without having to start one from the ground up. You don’t have to create the product or service, develop a new business model, or take on the incredible challenge of marketing a completely unknown business. This makes franchising a favorable option for aspiring encore entrepreneurs.
One of the biggest mysteries about franchises is the relationship between the parent company, or the “franchisor” and the franchise owner, or “franchisee.” For example, while the franchisor does take a cut of revenue for marketing, this usually only goes towards commercials, signage, and other national-scale campaigns. All local advertising initiatives are left up to the franchisee.
And while the franchisor does lease the physical space, it’s up to the franchisee to pay for new equipment, repairs, or furniture. The franchisee must also hire new employees, though the employee training program is already in place.
Aside from established brand awareness, arguably the greatest advantage of franchising is not having to secure or maintain partnerships with vendors or suppliers. The franchisor usually takes care of this notoriously troublesome responsibility.
So, before choosing which franchise to open, make sure you’re crystal clear about who handles what. For specifics about expenses, ask your prospective franchisor for the franchise disclosure document. Franchisors are legally required to provide this document, which contains the franchise’s budget, revenue history, and more crucial financial information.
Franchises also have their own requirements for franchisees, such as net worth and initial investment. You’ll have to pay a “franchise fee” simply for opening the new location. This can be paid in a lump sum or installments and typically ranges from $25,000 to $75,000.
Buy An Existing Business
Buying an existing business offers another easier transition into entrepreneurship. Like franchising, you get to avoid the countless obstacles that come with starting from scratch. But while franchisees are required to follow certain instructions in regards to strategy, owners of existing businesses can theoretically run the business however they want. You can probably find an existing business that aligns with your personal interests.
Compared to franchising, buying an existing business involves significantly more time and money. The full process of finding and acquiring the right business can take over a year. It’s not uncommon for deals to fall apart due to disagreements on price or the discovery of hidden problems like outstanding debts or products becoming irrelevant.
To get an idea of what’s for sale in your area, talk to local business owners and check the numerous websites that show businesses for sale. Business owners usually don’t alert the public when putting their businesses up for sale. Thus, the best way to learn who’s interested in selling is speaking with business owners in private. After conducting research, you can take your first major step in this process and contact a business broker.
Start a Brick-and-Mortar Shop
The most expensive and time-consuming path to entrepreneurship is opening your own brick-and-mortar shop. When you consider the amount of expenses and physical labor involved, there’s really only one logical reason to choose this option: location. If you’re looking to start your own business and you know of a perfect location that’s newly available, it might make sense to capitalize on this rare opportunity. Location plays a huge role in the success of brick-and-mortar shops. For this reason, the right location can sometimes justify the astronomical costs of monthly rent or a commercial mortgage.
Step 3: How Will You Finance Your Business?
Earlier, we alluded to the importance of staying conservative with your resources. When deciding how to finance your new business, it is strongly recommended to avoid dipping into your retirement fund. This is extremely risky for encore entrepreneurs on the older side. All entrepreneurs must think about how they’ll recover financially in the event of a failure. Well, losing your retirement fund is something you can’t really recover from if you’re already old enough to retire.
Thus, encore entrepreneurs should most certainly look into all viable sources for business funding. This includes SBA Loans, business credit cards, business lines of credit, and equity financing. Older individuals may have an easier time qualifying for business loans because they tend to have high credit scores and own their homes, which enables them to provide collateral.
Your chances of obtaining an advantageous business loan are particularly high if you intend to open a franchise. Financial institutions favor franchises because of their long revenue history and proven business model. Franchisees also have less monthly expenses to worry about and are less likely to run into unforeseen problems related to recruitment, inventory, equipment, etc.
Step 4: Learning the New Standards for Success
Regardless of which business model you choose, all new entrepreneurs must be prepared to learn. Even if you’re re-entering a familiar industry, you’ll have to take the time to learn the new standards for running a business these days. Various aspects like marketing, accounting, and hiring are handled very differently. You’ll need a business website as well. This segues into a critical challenge for all new entrepreneurs: deciding whether to outsource a necessary service or learn how to do it yourself.
Then you have the new standards for demand in your industry. You must learn your target audience’s preferences and cater to their other lifestyle choices. So, when considering the amount of time that will go into starting your business, you cannot neglect the endless learning process. Encore entrepreneurs can bring themselves up to speed through online courses, blog content, podcasts, etc. Instead of reading the newspaper in the morning, you’ll peruse the latest industry-related news. This content can show you which resources and technological tools are favored by your competitors, along with why popular strategies succeeded or failed.
It’s natural to be overwhelmed by the amount of helpful information at your fingertips. This is why many entrepreneurs seek guidance from an industry mentor, either in-person or online. You’re going to have lots of questions, so it’s highly advantageous to be able to get your answers from just one person.
Step 5: Planning Your Eventual Departure
All entrepreneurs must have clear plans for the future. For encore entrepreneurs, this plan must include what they intend to do when they near the end of their lives. Everyone’s health declines with age. Without a written transition plan and the right insurance package, you’ll have to deal with legal issues on top of mounting health issues.
Here’s how to go about both requirements:
Develop a Succession Plan
A succession plan explains who will take control of your business once you are no longer able to remain in charge. Also known as a transition plan or business continuity plan, this document ensures your business’s long-term survival following the departure of its current leader. It addresses how your spouse and children will be compensated from business income moving forward. You must also determine how your business will continue to honor its current debts and contracts during and after the transition of ownership.
In addition to naming the new owner, your succession plan names the employees that will assume leadership positions and how they will be trained to fulfill their new roles. If you have a family business, your plan will address your heir(s) decision to continue working for the business or sell their shares. All outstanding debts and contracts should be addressed as well, since failing to do so could result in a default.
To develop a succession plan, you’ll need to hire a consultant, CPA, or business lawyer.
Key Person Insurance
Key Person Insurance provides financial security should the business owner or any “key” individual become critically ill or pass away. The coverage offsets the financial losses that ensue following the key individual’s departure. Clients could leave, employees could quit, and the business will almost certainly lose revenue during the transition into new ownership. You could also use the funds to pay off outstanding debts, train new executives, and even pay employees when revenue slows down.
Key Person Insurance premiums can range from $100 to over $1,000 per year. The cost of your plan will depend on how many “key” individuals your business has, how much money you’d lose should they die or become ill, and how long it would take the business to recover. It is generally recommended to purchase a plan valued at eight to ten times the key individual’s salary.
Encore Entrepreneurs: Know What You’re Getting Into
As you can see, a central theme in this guide is recognizing the difference between becoming an encore entrepreneur and general entrepreneurship. Aspiring encore entrepreneurs should only pursue this path if they know exactly what they are getting into. They must understand the unique risks they face and be realistic when choosing which type of business to start.
Regardless of their industry or business model, all encore entrepreneurs must be willing to spend a considerable amount of time learning the standards for success and outlining their plans for the not-so-distant future. This is a huge challenge but if you have the right experience and there is a clear market for your idea, there’s no reason to let your age limit your opportunities for happiness.