Making Cents: Starting a small business in retirement
By: John P. Napolitano, CFP®, CPA, PFS, MST
Everyone’s vision of retirement is different. Certainly the idea of retirement in 2020 is different than it was in 1950. Today’s retiree is more active, with many to-dos on the bucket list and the time and resources to pursue their vision.
To some that means starting a small business. Maybe it’s your hobby that you’ve longed to turn into a business, something that you’ve observed is in high demand in your market place or simply some consulting that you may be do for your former employer to earn a little extra money. Regardless of your reason, there are some things that all business owners need to consider before hanging out that shingle.
The first is your choice of entity. You can be a sole proprietor, call it Johnny’s Food Truck. A sole proprietorship means that you own it, all of the assets, revenue and liabilities belong to you personally and you file a schedule C along with your tax return to report the results from that sole proprietorship.
In a sole proprietorship, your biggest risk is liability. Any adverse consequences will flow through to you personally. In my food truck example, don’t let your passion for tossing pizzas put you in a place of being sued by someone claiming food poisoning. Similarly, if you slam that truck into someone while driving from destination to destination, any excess liability not covered by insurance will be owed by you personally. If your small business is making wood carvings, it’s still possible to succumb to liability. It could be the person delivering tools or raw material to you, the customer who comes to your shop to look at samples or someone that got a life shortening splinter from your carving. You may have more protection with a corporation of an LLC.
The next issue is capitalization. Create a business plan outlining what type and how much capital is appropriate. Then make a plan for how much you are willing to invest in this business to get it off the ground. Is that money you can afford to lose? And the last part is some revenue forecasting. If you think that your net results will be minimal to zero, then maybe it simply makes sense for you to go work somewhere that allows you to practice your hobby or dream without financial risk or liability.
The last part is insurance. All businesses need insurance of some type. If your small business is running out of your home or garage, realize that your homeowner’s policy is not likely to offer much protection. The same would be true of a personal car used for business purposes. If you’ve got any employees or friends helping out that you toss a few bucks every now and then, be very careful. For these and for the sake of protecting your life’s savings, you should talk to a qualified agent to see what type of coverage may be optimal.
John P. Napolitano CFP®, CPA is CEO of US Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.