A recent study issued by the outplacement firm Challenger, Gray, & Christmas has been making the rounds the past couple of weeks in the newspaper business sections. The study reports that baby boomers are looking in large numbers to make entrepreneurship part of their retirement plans.
One of the reasons stated by boomers for choosing this path relates to a lack of retirement planning. It seems many in my generation lived it up from the 1960s through the 1990s and have little wealth to show for their efforts. Many seemed to carry the “live for today” mentality throughout their entire working lives.
However, the problem with viewing entrepreneurship as the Holy Grail for their sunset years is that it may not help them achieve wealth.
Many are choosing a self-employment, consulting route to entrepreneurship. They gained significant expertise within some specific area, and they become a “free agent” selling their service to a variety of clients. While this can create an income flow, it is not a business model that generally creates a path to wealth.
There is often nothing to “sell” when the boomer entrepreneur really wants or needs to retire. A consulting business is tied to the activity of the owner and has no residual value that someone will be able to buy. A business has value to a buyer if it creates on-going cash flow into the future. If the boomer entrepreneur/consultant retires, the cash flow from his/her consulting activities ends.
There seems to be a myth that entrepreneurship and self-employment are secret paths to wealth. If these boomers didn’t prepare in their working years, they can start a business when they reach retirement age and it will magically create wealth. It just doesn’t work that way.
Wealth takes time, effort and careful planning to build, whether it be through a job or through your own business. Creating wealth from an entrepreneurial venture is something that has to be engineered into the business model. That is why many experts recommend having your exit plan in mind from the very beginning of the business.
You need be able to build a business that will generate cash flow into the future long after you leave the scene. That is what has value to a buyer more than anything else. They don’t care about assets or reputation unless these things can continue to generate income after they buy your business.
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