Have a question about a small business topic? Let our resident expert Chris Griffiths take a run at it. E-mail your questions to smallbusiness@globeandmail.com. Confidentiality ensured.
The question: I'm in my early 50s and have departed a position with a 13-month severance package. I'm confident that I can move into a similar position in my industry, but am thinking this is a great opportunity to start a business I have been contemplating for a while. Is my age a disadvantage?
Answer: No doubt age plays a role in the creation of a small business. When you're young, you may have no dependents and are willing to make substantial financial sacrifices in order to get your business off the ground. I shared my own experiences in that regard in a previous article. Starting a business can mean long hours and low pay, but your standard of living at this stage can be more 'flexible.'
While youth allows you to dig in, it also has its downsides. In your youth you have less experience, a smaller personal and professional network, few references and a reputation that's very much a work in progress. Borrowing money and finding investors is all the more difficult in the early years.
As an aspiring entrepreneur in your 50s, you have a different set of challenges. You likely have a family and a standard of living to maintain. Risking all you've got is a heck of a lot easier when you are young and have little to lose. The stakes are much higher now.
That said, you have had decades of real-world experience and hopefully have built a powerful reputation and network that can support you. Furthermore, you may be in a better position to raise the capital you need to get the business off the ground. You may have savings or home equity that you plan to invest or borrow against. This a real advantage to avoiding the number one cause of business failure – lack of sufficient working capital.
Furthermore, you have a severance package that buys you some time to work on your business plan and, depending on the complexity and scale of your startup, get up and running without pulling a salary out of the business right away.
A word of caution, however: Even if you can self-finance your start up, don't. The process of finding lenders or investors to contribute to your startup and working capital needs will force you to operate at a higher level. It will require that you write a business plan and forecast realistically. If you can't find someone to invest along with you in your business, even at a small scale, it begs the question: "How pragmatic is your small business idea?".
When investing in anything, I wouldn't leverage more than I could afford to lose at this stage of your life. Lenders and investors will want to see that you have "skin in the game" so that a business failure would be clearly detrimental to your standard of living, but that doesn't mean a business loss has to devastate you and your family. The fact that you have confidence you can move into another salaried position in your industry is another powerful asset that not many people in your position can benefit from.
So, in the absence of more details about your idea, I will say that a healthy severance and a fall-back plan that allows you to return to the workforce should the business fail puts you in a strong start-up position.
Don't just wing it though: Look for investors and bank support to properly capitalize your business and force you to be formal in planning your startup. You're not too old. In fact, you're better positioned than many. Good luck!
Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and exited seven businesses.
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