Heading into retirement or already retired and needing a little extra money? Keeping active is often vital to a great retirement. A small business run from your home might seem like the perfect solution offering the extra money that you need, a bit of fun in retirement, maybe even purpose in your life.
In my father’s case, although he had to retire early because of his eyesight, he still maintained an interest in working for the local Housing Authority and taking a very active part as a sidesman in his church. Healthy living, not smoking, and the occasional drink were, I’m sure, part of the reason why he lived to 94 but having a purpose and keeping active was certainly high up in the list of key reasons for his longevity.
And you might be thinking, “I need a little bit of flexibility in my retirement. I don’t want to be committed to working for the man the whole time. I want to go on holiday. I want to have lunch with my wife and friends. I like to play a round of golf”.
If you’ve already run a business before you retire, you’re probably already thinking, yeah, that’s not particularly realistic. And if you haven’t run a business, then it’s time for a reality check.
I hope that today’s segment, where I’m looking at eight questions to ask yourself before you start a retirement business, will help.
Now straight off, I’m going to tell you that I think running a retirement business is entirely possible, can add a whole new dimension to your life, and has the opportunity, but not guarantee, that you can earn extra money.
Why are you doing it?
Let’s start by asking what I think is a key question that everybody should ask, but almost nobody does. Why are you doing it? There are many answers to this question, and they can be very personal to your situation, needs, and aims. On the other side, some solutions probably indicate a need to take both a reality check and think again. So let’s look at some of the possible reasons why you might want to operate your own retirement business.
I can lump two answers together because I think these are where it can be problematic for anyone who hasn’t run a business before. Are you planning to operate this business for fun or profit?
There’s no reason you can’t offer both answers, and it’s often said that if you can find work that you enjoy, you will never have to work a day in your life. I think that the last statement is all charming for a motivational book, but it’s only ever going to be partly true in the real world.
Why do I say that the idea that’s enjoying your work means that you’re not working is not a great idea? Let’s look at an example. For years you’ve worked in an office, but your true passion is woodwork. Quite possibly, you have made pieces of furniture that family and friends admire. Maybe you’ve given them away or just asked for the cost of materials. That’s a hobby. And I can see why you think it’s a great hobby.
Now you’re retiring, and your thinking I like to do woodwork and build furniture, so if I’m doing that, I’m not going to be working a day in my life. What is completely forgotten, or maybe you didn’t realize, is that you will have not just to make what you want to make, but you’re going to have to make what people want to buy. You’re going to have to calculate how much your time is worth and add that to the selling price, not just the material cost. Trust me when I say that family and friends will not be excited about paying the extra money you’re now asking.
You’re going to have to advertise. You’re going to have to go out and find new customers. You’re going to have to keep bookkeeping records. You’re going to have to deal with the taxman whether or not you choose to employ an accountant. You might even have to deal with your local authority over whether or not you can run a small business from your workshop in the backyard. What about insurance and other liabilities? I don’t want to put you off, and maybe building high-quality furniture is a good business idea, but only part of it is fun. There are always other necessary tasks. But unless you’re a somewhat unusual person, I don’t think you’re going to call it fun.
Having knocked the fun part on the head, what about profit? If you need extra money in retirement, this seems to be a no-brainer, but you have to understand that making a profit is not the same as making money. It may seem strange, but you can make a potentially taxable profit but end up losing money. Just understand when you’re making your plans that you know that cash is king, so if you can find a business where you will be paid cash up front, that is the best scenario. Compare the woodworker from the previous example who’s going to have to push out a lot of money on equipment and materials before they can even produce something to sell and then compare that with somebody like a retired teacher who offers tutoring services. You can actually ask for money upfront. Either they pay you at the session, preferably in cash or credit card if you take that. Or even better still, you can say that if you want me to teach your child, I am so good that you have to pay me for ten sessions in advance.
Maybe your answer is that you want some purpose in your retirement. Going from working 40+ hours a week and sitting at home watching daytime television, trust me it is mind-numbing, or even as much fun as it sounds playing golf every day of the week might not be sufficient to give you a feeling that it is mind-numbing there is a purpose in your life. A small business gives you this but doesn’t forget the profit aspect. If all you want from life is a purpose, then maybe you’d be better off offering your services to a not-for-profit organization, your local church, or charity. If you’re good enough, in the end, they might eventually pay you to do it. All I’m saying is the purpose without profit does not make for a sound retirement business.
You may think that running your own business, as opposed to going working for somebody, offers you an opportunity to have a flexible lifestyle. So you want to play golf, or you want to go on vacation regularly. Maybe sneak out on a Friday and not get back until late on Monday. When you work for somebody, you tend to have one boss, maybe two or three, depending on how big the organization is. When you have your own business, not only are you your own boss but also add up all the customers or clients you have and become your boss. Customers and clients can be very demanding, and some are both unrealistic and rude. If you need flexibility in your business, you really will have to choose what you do carefully. If your game plan is to go away for an extended time during the winter when it’s cold and snowy, then operating a bookkeeping business is probably not going to be an option. Not only have you got the problem of commitment to regular work, but you’re also well into tax season in many places. Perhaps a lawn care business that operates spring through fall will work best.
Whatever you decide as your reason for running a retirement business, please make sure that you keep making money as your number one motivation. Sorry if it sounds mercenary, but please understand that you are doomed to failure without this.
What do you have to lose?
Closely connected to making money is the question of what do you have to lose?
It is a fact that many businesses do fail. The good news about this is that most of the ones that fail either should never have started in the first place or that the person doesn’t understand the importance of making sure you make money. It’s all in the planning. Cliche, but “no one plans to fail but plenty fail to plan.”
Next, you will see statistics that say, and depending on where you are in the world’s these may vary a little bit, but typically somewhere in the region of 50% of new businesses don’t survive beyond five years. Don’t get too downhearted about this statistic because the devil is in the detail, as so often is the case. Just because a business doesn’t last does not mean it hasn’t been successful. There are many reasons why people choose to close down the business. Only one of which is the fact that it fails. There are plenty of businesses out there that are profitable and do make money, but the person decides to close it down for all sorts of reasons. This might be that they’ve decided self-employment isn’t for them, but it doesn’t mean that they haven’t been profitable. It also might come back to this idea of flexibility. Especially if you’re heading into retirement or already retired and have a tremendous desire to travel, many small businesses, because of the commitment of time and energy, are not a good fit with the traveling lifestyle. So the person closes the business down even if it was profitable because it didn’t fit their lifestyle.
A common reason businesses finish is that the spouse or partner finds that it interferes with what they perceive as their ideal life. If you’re getting phone calls at 9,10 or 11 p.m. and you are answering the phone and dealing with your business, you’ll probably find that your partner will start to get a little bit annoyed about that. So often, very successful businesses are closed down because they want to maintain a relationship.
The final reason I’d give for a business closing down, even though it might be profitable, is the fact that they’ve gone into it thinking this is going to be fun and exciting and then find that although you’re making money, it is not fun and it has lost its interest.
Having covered the idea of why businesses might fail or why they might close down, let’s take a look at what you do have to lose if things go wrong. You may be exceptionally fortunate, and all the tools and equipment you need to run your business you already have. But there are plenty of businesses where you will have to spend extra money on things like equipment and advertising. If your business doesn’t work, then the equipment you bought will be worth a lot less money than you paid for it. You need to go into a business understanding that you may lose money, so ask yourself whether you can afford to lose that money if things go wrong. Any money you lose will impact your lifestyle, but does it put you at serious risk.
I’ll put these together – you are at risk of losing your sanity and health. I’ve run enough businesses for years to know that a section of the population should be locked up and never allowed to interact with a business. Customers and clients can be complete and unreasonable assholes. Customers and clients are not always right, even though they think they are. That’s your sanity dealt with now. What about your health. You’re getting older. Can you maintain the level of commitment and activity that a business would demand? You might also want to think about what happens to your business if you become ill.
We’ve already talked about flexibility and think about how the business will be the same or different from your previous work experience. If you’ve been working Monday to Friday 9 to 5 with two weeks vacation a year, is this really what you want to do in retirement?
Simply put, when you’re looking and assessing your business idea, you have to think about your risk tolerances and how big of a business you want. Think also about how it will fit in with your lifestyle, what you’re interested in, and your physical health.
Finally, and I think most importantly, please understand that if you become too involved in your business or your business takes over your life, then there is the risk of losing your partner, the connection with your family, and your friends.
What will you do?
For some people answering the question “what will I do?” will be simple. Perhaps you’ve already run a business, and your plan is to operate something similar in retirement, albeit on a smaller scale.
If you have a readily marketable skill, you will also find it relatively easy to put together a small retirement business idea. An excellent example of this would be a junior schoolteacher. Tutoring services are always in demand by eager parents, if not always the students themselves. But you might also spend a little bit of time thinking about what you will offer. The Scattergun approach might seem attractive where you offer to tutor as and when needed on any subject. An alternative approach is to decide upon a niche. From a marketing and advertising perspective, focusing on being a math tutor or offering help with special needs students with dyslexia can be a better option. You’ll undoubtedly find you’ll quickly build a reputation, and referral rates are likely to rocket.
I have known people go into small printing businesses. With the advent of computers and home printers, you might think that this isn’t going to be a viable idea. However, if you have a little bit of talent for design and the choice of fonts, then printing on to high-quality cards for invitations and weddings might have an underserved marketplace. If you don’t have any obvious business idea, or even if you’ve decided you want to do something completely different, then you’re going to have to spend more time analyzing your existing skills and whether gaining new skills is a viable option—just a quick example from my own experience.
I’ll talk more about this in a later podcast, but for now, it is sitting down and looking at what skills you have, how you might use them within a business context, and finally looking to see whether there is a market for this type of work. If you know a couple of other people doing it, you can do it better, and is there room for another person. Quickly, if you see absolutely nobody else doing it, you probably want to think twice.
What are my startup costs, and how will I finance them.
If you’re doing a tutoring business or a bookkeeping business, then you probably have everything you need. On the other hand, if you’re planning to go into a small printing business, you need to look at the costs of small commercial printers and associated supplies. Some people are just going to be lucky.
Even if you have the simplest of businesses, and a tutoring business is a great example, then you might think all you need is a small computer and printer, pens and paper. But will you be tutoring out of your home, or will you be traveling to students? If you’re traveling, will you need a new car? In the case of working from your home do you need any special furniture, tables, chairs and are you going to decorate a specific room?
Whatever your business idea, and it does make sense to look at businesses with low startup costs, money will need to be spent. How are you going to finance this? Will you be using your own money? Would you be looking for a bank loan?
If you’re looking to use your own money, can you afford to lose that money if the business doesn’t work?
Can you afford the repayments and interest on the loan question if you plan to borrow the money to get your business venture up and running? What if the business fails? Can you afford to keep paying the loan, or will it put you into financial difficulties?
I wish I’d thought of this, but I do like the phrase that some people came up with that when it comes to borrowing money to start a business, “borrowing from a bank should be plan Z.” Being accountable to a third party that has no great investment in your business is never a good idea. The interest rates are likely to be high and their demands correspondingly high.
Do I have the motivation and energy?
As much fun as running your own business might seem, it is nothing like working for someone else. If you’ve ever worked in a small business, you’ve probably heard employees complaining that the owner is never there and that they do all the work, etc. My answer to that is always, “if it is so damn simple, why didn’t you do it?”
Running a business, even a small business run from your home, demands a great deal of self-motivation and energy. There will be days when you feel that you’d rather stay in bed or that you’d like to shut up shop at 4 o’clock on Friday and go away for the weekend. And sometimes, it’s possible. My own experience is that with some careful planning and a little bit of luck, I’ve been able to be quite flexible with my vacation plans and weekend breaks.
So the question is, how can you manage it? Motivation and energy. You have to squish the work into a week instead of two weeks so that you can have the time to go away. You have to want to do it and have the energy to do it.
Here’s a little bit of unusual business advice. I know for a fact that when I swim regularly, do the gym, mow the lawn or go for a bike ride, my levels of energy and fitness increase. If you plan to start your own small retirement business, one of the best investments you can make is to work on your health and fitness. Lose some weight, go to the gym, or cycle regularly. Do anything you can to make yourself fitter. With fitness comes more energy; it’s easier to be motivated with more energy. Quite frankly, apart from being good for business, it’ll be good for your private life as well.
Do I have the support of family and friends?
Start by taking a look at what your relationship status is. Do you like to do things together, perhaps hiking, going on vacation, or having regular meals? Are you in a long-term relationship, do you have demands on your time from family, and what about your friends?
If you’ve been used to a 9-to-5 job, then it’s relatively easy to plan your life and fit in all your family and friendship needs and obligations. Running your own business can impact these relationships, and you can lose some flexibility in your life.
Running your own business, even a small, low-cost business, can affect your stress levels. Do you have the support of your partner, will they understand that you are sometimes very focused on your business and perhaps not showing the care and attention to your relationship you should, and will they give you the space you need.
One of the biggest problems of people working from home is that people see you and assume that you are available. You must set boundaries for family and friends.
Think long and hard about how running a small business is going to impact your relationships and do take time to talk to everyone about your plans and in particular, spend a lot of time with your partner looking at how it is going to be managed so that everybody can be as happy as possible. The extra monies will be nice, but if you are very careful and do work at it, it is also possible to build in personal time.
When do I start, before or after retirement?
Quite honestly, why wait? If you have a good business idea and you have the time, energy, and motivation, it makes absolute sense to start before retirement. If you’re already working, you can put the extra money to one side for future travel or a new car.
You don’t even need to start the actual business before you retire but take the time to plan and launch the new business.
The great thing about starting before you retire is that providing you’re working, you have money coming in to cover living expenses and hopefully some extra for startup costs. This certainly takes away some of the financial pressures of starting a new business.
On the downside, do you have the time and energy after already doing a full work week? There’s good no reason to drive yourself into an early grave.
Flexibility and what do I lose?
On the plus side, running your own small retirement business has the potential to offer you a flexible and effective way to supplement your retirement income. It demands some careful thought and attention to detail and motivation and energy.
However, there is a downside, and your retirement business is no exception. The most important thing we have is time, and unfortunately, as you get older, it is increasingly in short supply. Time spent running your business is not available to spend on hobbies, your partner, family, and friends, or traveling the world.
It would be best if you were careful to balance the security of extra income against actually doing something that will bring you nonfinancial reward and satisfaction. This is something that you and your partner will need to discuss.