How To Start a Business During Retirement
Many retirees are finding that starting a business is the perfect way to stay active and engaged after leaving their full-time job. Staying afloat and being financially secure during retirement is a must for us to survive in this world. A perfect way to keep the money coming in your mature days is to start a business!
Tips for Starting a Business During Retirement
If you’re considering starting a business during retirement, there are a few things you should keep in mind.
- Make sure you have enough money saved up. Starting a business can be expensive, so you’ll need to make sure you have enough money set aside to cover the costs.
- Consider your health. Starting a business can be demanding, so it’s important to make sure you’re physically and mentally up for the challenge.
- Choose a business that interests you. Retirement is the perfect time to pursue something you’re passionate about, so choose a business that you’ll enjoy working on. Oftentimes, you can monetize a hobby you currently have, like woodworking or cooking. However, don’t just start a business because you enjoy it, do market research, make sure that there a people willing to pay you for your business.
- Get help from others. Don’t try to go it alone – reach out to family and friends for help and advice. Consider reaching out the Small Business Administration SCORE business mentoring volunteers.
- Plan for the future. Retirement is often seen as the end of one chapter, but it can also be the start of a new and exciting one. Make sure you have a solid plan in place for your business so you can enjoy success for years to come.
By following these tips, you’ll be well on your way to starting a successful business during retirement. So, what are you waiting for? Get started!
Register Your Business
To become a legitimate business in Ohio, you’ll need to take certain legal steps.
- Register your business with the Ohio Secretary of State. You’ll need to choose what type of business you want to be (an LLC, S-corp, etc.).
- Obtain a federal Employer Identification Number (EIN) through the IRS.
- Open a business bank account, using your new EIN.
- Register with the Ohio Department of Taxation. The department also offers a training program so you can learn more about Ohio tax laws and requirements for small business owners.
- Report new hires to the Ohio New Hire Reporting Center (including yourself).
- Apply for worker’s compensation insurance. This is required if you have one or more employees.
- Determine if you need to establish an Unemployment Compensation Tax Account through the Ohio Department of Jobs and Family Services.
- Obtain any necessary licenses and permits. Many specialized services, such as construction and food, need to obtain special local and state permits to do business in Ohio.
How Can I Get a Business Loan?
Many first-time business owners choose to apply for a SBA-backed loan. The Small Business Administration helps small businesses get funding by setting guidelines for loans that lending partners provide.
There are many types of SBA-backed loans, including:
- 7(a) loans, the SBA’s most common loan program. 7(a) loans provide financial help to small businesses – with special requirements. 7(a) loans can be used for real estate, short- and long-term working capital, refinancing current business debt, and purchasing supplies.
- 504 loans, which are long-term fixed-rate loans. They can be used to help finance, purchase, or repair real estate, equipment, machinery, or other assets.
- Microloans provide $50,000 or less to help businesses start up or expand.
Check Your Eligibility Before Obtaining a Business Loan
When evaluating your small business loan application, local lenders will likely consider four primary factors. However, requirements for business loans can vary among lending institutions.
- Credit score. A business loan lender will use your personal and business credit scores to help assess the likelihood that you’ll repay your loan. Generally, a high credit score means more chances of loan approval and a lower interest rate.
- Collateral and/or personal guarantee. Lenders may require that you put up collateral, or something of value such as equipment or inventory, which they can take if you don’t repay the loan. Some lenders also ask for a personal guarantee, which means you have to secure the loan with personal assets like your savings account balance, home equity, or other valuable belongings.
- Time in business. If you’ve been operating your business for less than one year, don’t despair. Some online lenders will still approve qualified applicants who have only been in business for six months. While a traditional bank usually requires a company to have already been running for two years before they’ll lend money, an online lender often only needs proof that the business has existed for twelve months.
- Annual revenue. Another important deciding factor is your total annual sales. Make sure to check with the lender about their requirements before starting the application process and take a look at your business finances to see if you qualify.
Using Retirement Accounts to Fund Your Business
For some people, using their 401(k) or IRA to start their business may be a better option than a traditional loan. Here are a few options:
- Borrow money from your 401(k). If you need money, you can take out a loan from your retirement account instead of withdrawing the funds outright. If you have a 401(k) account, you can usually borrow up to 50% of your total funds, or $50,000, whichever is less. Repayment terms require that all borrowed money be repaid to your 401(k) within five years on a quarterly payment schedule. You’ll also need to pay interest on the loan – which is usually around 1 percent – back into your 401(k).
Be sure to talk to your accountant and 401(k) administrator before pursuing this option.
- Invest IRA and/or 401(k) funds directly into your business. If you’re forced to dip into your retirement funds, tax law permits you to do so without penalty or interest rate if you adhere to some specific rules. These rules are complex, but in short, you will need to establish your business as a “C corporation” that will disperse all of its stock and transfer it over to a new 401(k) profit-sharing plan in trade for the cash already in the plan. Getting this process started will require support from either a tax attorney or an accountant who is experienced with incorporating businesses and setting up new retirement plans.
- Withdraw directly from your 401(k). This should be a last-resort option. You’ll have to pay taxes on any funds you withdraw, and you could face a hefty penalty depending on your age (10% if you’re 59-1/2 or younger).
There are many ways you can obtain the money you need to start your business. Our financial advocates are here to help you every step of the way, from registering an LLC to applying for business loans. Call us today at 614-408-0004 to get started.
Need inspiration? Listen to Episode 37 of our podcast, Your Financial Advocate, where Dr. Bimbo Welker talks about his journey from “working for the man” to starting his own veterinary practice.