How to Plan, Launch, and Maintain a Business

The years that follow a national crisis often coincide with a boom in entrepreneurship. After WWII, for example, the United States saw a surge of new businesses emerge as millions of service members returned to civilian life and sought meaningful employment.

The post-pandemic landscape may prove similarly advantageous for entrepreneurs. According to the U.S. Census Bureau, Americans submitted 5.4 million business applications in 2021—a 53% jump from 2019 pre-pandemic levels—many of which came from early retirees looking to professionally pursue a long-held passion. Indeed, roughly half of small businesses are owned by entrepreneurs over age 50.

As attractive as opening your own business might seem, however, it's a demanding endeavor that even the most seasoned entrepreneur won't always get right. "Creating a business from the ground up is a complex, multistep process with a lot of potential stumbling blocks," says Steve Boltz, a senior financial planner at Charles Schwab who specializes in financial planning for small-business owners. "And for entrepreneurs starting a business later in life, it's important to understand that your runway is a lot shorter—and that missteps could undermine the lifestyle you've worked decades to build."

Before setting out on your own, consider tackling the following tasks to significantly increase your odds of success.

As the saying goes, "If you fail to plan, you are planning to fail." Here's how to turn your idea into a viable business.

Even the best idea won't succeed if there's no market for it. Start by getting to know your area, your competitors, and your potential customers. If you'll be opening a brick-and-mortar business, for example, what are the rival establishments, foot traffic, and household income in and around the location you're considering? Conversely, if you're taking a largely online approach, you might focus more on competitive pricing, marketing, and the quality of your services.

Estimate your potential expenses, separating them into two categories: upfront costs, such as equipment and licenses, and recurring expenses, such as rent and supplies. This will help you determine how much it will cost not only to get the business off the ground but also to keep it running. Your plan should account for at least a year's worth of operating expenses, or as many as five years' worth if you'll require financing and/or outside investment.

Assemble your market research and financial projections into a formal written plan. This document should also include a summary of your products or services and a value proposition that differentiates your business from that of competitors. If your business will provide physical goods such as food or attire, your plan should also include potential suppliers, lead times, and other variables that can influence your success. "Thinking through these details ahead of time can help you anticipate obstacles and refine your vision," Steve says.

Now is also the time to define what success means to you. For example, what profit margins will be required to sustain the business—and what is your Plan B if you aren't able to achieve them? "If you have adequate savings and the business is more of a passion project, this may be less of a concern," Steve says. "But for those who plan to make a living off their new venture, it's important to set guardrails in advance so you're more clear-eyed about when to call it quits."

Once you have a plan in place, it's time to put it into action.

The biggest hurdle for many entrepreneurs is funding. If you're self-funding your business, you might be tempted to tap a retirement account for capital. Before you do, consider the consequences of such a move. Taking a distribution from a tax-deferred account prior to age 59½ will trigger a 10% early-withdrawal penalty, plus ordinary income taxes. "Dipping into your savings—regardless of your age—could undermine your retirement," says Hayden Adams, CPA, CFP^®, director of tax and financial planning at the Schwab Center for Financial Research.

Fortunately, there may be other funding options available that won't require you to tap your nest egg, such as:

• Small-business loans: Older entrepreneurs tend to have an easier time securing business financing than their younger counterparts, though such loans may still be hard to come by. "Due to the high level of defaults on such debt by startups, lenders will likely require you to personally guarantee the loan—and charge you higher interest for the risk they are taking," says Chris Kawashima, CFP^®, a senior research analyst at the Schwab Center for Financial Research. Consider starting with the U.S. Small Business Administration to see if you qualify for a loan.
• Personal loans: If you can't find a lender for a business loan but you have a strong personal credit history and low debt balances, you may be able to secure a fixed-rate personal loan at a reasonable rate. Confirm that you can use the loan for business, and know that missed payments or inability to repay the loan will hurt your credit score.
• Outside investment: Depending on the type of business, you may be able to attract funds from outside investors. However, such agreements often mean giving up some control or ownership of the business, and will affect the type of business structure you choose..
   

To legally conduct business, you'll have to register with the state. But before you can do that, you'll need to settle on a business structure, which will affect everything from the taxes you pay to the extent of your personal liability in the case of legal action.

There are many structures to consider—ideally with the help of a qualified attorney—but among the most common are:

• Sole proprietorship: This straightforward option gives you complete control over your business. However, your business assets and liabilities are not separate from your personal assets, meaning you can be held personally liable for the debts and obligations of the business.
• Partnership: A popular choice for businesses with multiple owners, this option can be structured as:
  • A general partnership, in which each partner is personally liable for the debts of the business, while profits and control are generally shared.
  • A limited partnership, in which the general partners have full control over and liability for the business, while limited or silent partners aren't involved in the running of the business and are liable only up to the amount of their investment.
  • A limited liability partnership, in which all partners may partake in the management of the business but aren't typically liable for their partners' misconduct or negligence.
• Corporation: Incorporating your business usually offers the strongest protection from personal liability—and is the only approach that allows you to issue stock. The two main types are C corporations and S corporations. Currently, C corporations pay federal tax on their income at the flat corporate rate of 21%, while the owners pay tax on whatever income they receive as an owner or employee. S corporations pay no tax; instead, the owners report their portions of the company revenue as personal income on their individual tax returns. Both structures are generally more costly to establish than other types of entities and require additional record-keeping and reporting.
• Limited liability company: An LLC can let you take advantage of the benefits of both a partnership and a corporate structure. An LLC can protect you from personal liability (in most instances), it's relatively simple, and it avoids corporate taxes, though you will be subject to personal income taxes on the income that flows through to you from the business.

"Typically, the best business structure is an LLC for most people—at least to start," Hayden says. "They are inexpensive to create and can protect your personal assets from many business liabilities."
 

Depending on the type of business structure you choose, you may want to build in additional protections to minimize risk to your personal and business assets. Among the most common types of insurance are:

• Business owner's—which simplifies the insurance-buying process by combining liability and property coverage into a single insurance policy.
• Personal liability—which protects your business assets if you're involved in a personal legal suit.
• Business specific—which includes specialized coverage, such as commercial auto, data breach, and workers' compensation, depending on your line of business.

Once you're up and running, here's how to sustain your momentum.

"The best leaders are those who recognize their own limitations and are willing to ask for help," Steve says. Consider assembling a team of trusted professionals to help navigate the complexities of business ownership, including an attorney, a CPA, a business mentor, and your financial advisor, who can help keep you focused on your long-term plan and financial goals.

"Launching a new business can be a chaotic time," Steve says. "But knowing whom to call when you run into trouble—or are presented with new opportunities—can take some of the stress out of it."

Long-term financial planning often takes a back seat to the demands of day-to-day business. "There's a tendency among entrepreneurs to assume that building a successful business will automatically result in a well-funded retirement," Steve says. However, according to the Exit Planning Institute, only 20% to 30% of businesses that go to market end up selling, leaving the remainder without solid options to cash out.

As a result, Steve advises every business owner, regardless of their time in, to have an exit strategy. Among the most common are:

• Outright sale: If your vision is to build a profitable company that can be acquired or sold in the future, you'll want to work with a business consultant who can help you position your business for success. "The more turnkey you can make your business, the easier it will be to find a buyer," Steve says. Another option is to sell the business to partners, the management team, or employees, potentially through an employee stock ownership plan, though this may require seller financing or a long-term transfer if the employees don't have adequate capital to fund the purchase outright.
• Intergenerational succession: Many business owners dream of building an enduring family enterprise. "If you don't need to sell the business to fund your retirement, passing it down is a great way to build a family legacy and provide for the next generation," Steve says. "Just be sure to start grooming your heirs well ahead of time so they can hit the ground running once you're ready to step away."
• Orderly liquidation: "Not every business will make sense under new ownership, especially if your individual services are the business," Steve says. In such cases, be sure to tie up all loose ends, such as closing out contract agreements, paying final taxes, and terminating the legal business entity.

Whatever your vision, it's wise to work with a financial planner from the outset to help ensure you're taking the proper steps along the way. "So many entrepreneurs put their blood, sweat, and tears into making a success of their business but never evolve beyond that phase," Steve says. "You need to be thinking about your end game from the beginning."