All businesses face risks
Just do a search on ‘business risks’ and you will find an endless number of them: cyberattack, business interruption, economic slowdown, price increase, bad debt, pandemic risk, distribution and supply chain issues, increased competition and more.
Managing risk is an essential part of business survival. If you identify what could go wrong, evaluate which risks should be dealt with and implement strategies to deal with these risks you will be better prepared to overcome them. And your business is likely to survive.
But should you risk starting up at all?
This depends on your options. How robust are your personal finances? And if you fail, how much do you stand to lose?
Starting a business can be risky. 20% of businesses fail in their first year and around 60% will go bankrupt within their first three years.[1] On the other hand, you are more likely to succeed if you are aged 50+.
Statistics vary. Research from Aston University finds that 48% of the over 50s succeeded after 5 years in business compared to only 29% of those aged 18–49 years old. Research by S Herman (2017) and cited in a paper by Birkbeck, University of London states that 70% of the over 50s succeed compared to 28% of 18–49-year-olds[2]. In any case, the message here is that your chances of success are significantly higher if you are over 50, because of the valuable skills, experience and contacts you have gained during your lifetime and career.
But there are risks, nevertheless.
Loss of financial security
During the first years of your new business, you are likely to earn less than if you were employed by someone else. You may also need a business loan and to use your own savings to cover any additional costs. Recent research has confirmed that if you decide return to employment, your pay will probably be less than if you hadn’t left.[3]
If you’re over 50, you have less time to make up for losses in earnings. In Why we need to be honest about the risks of entrepreneurship, Dr Cal Halvorsen advises Do your homework. And if you’re older and approaching retirement, be especially vigilant about assessing these risks. If anything were to happen, it’s essential to have a safety net to fall back on.
Bankruptcy
If your business can’t generate enough income to pay the bills and wages you risk bankruptcy. As a sole trader, your house, car, and other personal possessions could be seized to pay for the debts your company has incurred so managing your finances is crucial. If your business is a limited company, you can escape personal losses if your business fails.
Retirement security
You may be tempted to use retirement savings to fund your business, but if it fails, your income and standard of living in retirement will be reduced. According to thisismoney.co.uk, Anyone considering investing their pension into their business should seek good independent financial advice and make sure that their adviser is not trying to overly encourage them down that route to earn a fee [4].
Risk of ill health
You may have an excellent business plan, but if you are over 50 your risk of injury or falling ill increases, and in the UK, the disability free life expectancy is decreasing [5]. If you get ill or are injured and can’t work, will you still be able to look after yourself and your loved ones financially? If you stop receiving any income, is there anything else that could help you get by, like savings? If you don’t have sufficient resources, then one option is to insure against this, but be prepared to pay a monthly premium.
Emotional risks
As an entrepreneur you will sometimes have to cope with negative emotions like loneliness, worry and pressure. Solomon Thimothy, CEO of OneIMS advises: Before you make the jump, examine what you'll be able to handle and ask yourself if you are truly prepared for it. Have a conversation with your family and friends so they can fully understand and hopefully support what you will be undertaking [6].
But don’t lose sight of the huge positives of starting up!
Like the freedom and independence of being your own boss! The excitement of winning your first major contract! You will have to work hard, but it will be on your own terms, and you can focus your efforts on what you love doing most. Working for yourself can also create meaning and purpose by helping you achieve goals you weren’t able to pursue when you were younger.
So, should you go for it?
Well, it depends. It may be too risky for you to do anything at the moment. If you are unemployed with few job prospects you may decide it’s your only viable option. If you are currently working, you may decide to set up your business as a side-hustle and wait until it grows enough to support you on a full time basis. Or you just may decide that the time for you make your move is right now.
But before you do, make sure you evaluate your risks and take steps to mitigate them, so that you can reap the rewards you deserve. And consider getting a coach to support you along the way 😉.
Best wishes
Viv
[1] https://dcincubator.co.uk/blog/60-of-new-businesses-fail-in-the-first-3-years-heres-why/
[2] Experience versus youth: An exploratory study of the motivations of older entrepreneurs http://www7.bbk.ac.uk/cimr/wp-content/uploads/2020/08/CIMR-WP-46.pdf
[3] https://onlinelibrary.wiley.com/doi/10.1002/smj.3337?af=R.
[4] https://www.thisismoney.co.uk/money/smallbusiness/article-7452205/Would-dip-pension-pot-fund-business.html
[5] https://ageing-better.org.uk/sites/default/files/2020-11/The-State-of-Ageing-2020.pdf
[6]https://www.forbes.com/sites/theyec/2021/12/21/what-nobody-says-about-entrepreneurship-weighing-the-pros-and-cons/?sh=2815c7074ff9