Many retirees, having brought their first career to a close—often as an employee of a larger venture—look to establish a second career for themselves. Sometimes, this takes the form of consulting in the same field as their prior career; other times, it involves something completely different. Regardless of the chosen direction, they will face new issues that will require resolution in order for the venture to be successful. Here, we identify a number of those issues:
- Business Plan and Confidentiality Agreement
- Financing
- Choice of Entity
- Employees and HR
- Payroll, Employment, and Income Taxes
- Office Leases and Equipment
- Professional and Other Licensing
- Estate and Succession Planning
Business Plan and Confidentiality Agreement
If you do not know where you are going, you will never be able to get there. A well-constructed business plan will serve as a roadmap and allow you to plan the organization, launch, and initial operation of your new venture. The Small Business Administration has a model business plan on its website, and books such as Business Plans for Dummies invite you to ask the questions you perhaps had not thought to consider.
A business plan also will help with financing, which is discussed below. Before disclosing your plan to potential financing sources or other third parties, you should ensure they will maintain the confidentiality of the information in your plan by signing a confidentiality agreement (also called a non-disclosure agreement).
Financing
Every business needs some level of capital; a hot-dog stand is going to have upfront costs in acquiring the cart, food, drink and condiment expenses, fuel and other expendables, and licensing. Your business plan will have helped you estimate those costs in order to determine necessary capitalization.
Maybe you have cash on hand to capitalize the business, but maybe you do not. Tapping into your 401(k) may seem to be an option, but you should check with your accountant and financial advisor as to the pros and cons of doing so.
If you don’t have available cash to fund your venture, you need to borrow or raise money. Financing options include traditional bank financing as well as issuing debt or equity securities. If you want to bring in investors (even friends and family), be aware of federal and state securities laws, which have specific rules that govern soliciting investments and selling securities. Interests in your new venture may be “securities,” and even if no government filing is required by applicable securities laws, the anti-fraud rules always apply. Telling your investors one thing while your business plan or organizational documents say another is a very serious mistake.
Choice of Entity
Revisiting your business plan and your financing, you must decide the appropriate legal structure for your entity. The two preferred forms are corporations and limited liability companies (LLCs). Which entity is the best form depends on factors like flexibility, regulatory requirements, management, ownership, and tax considerations. Non-tax factors usually are the primary considerations because generally an entity can choose how it is treated for tax purposes.
Employees and HR
Where you were once an employee, now you may find yourself an employer–with a whole new series of headaches. You will need to determine your staffing needs, advertise for the necessary talent, interview, and make hiring decisions including compensation and benefits.
You will need an employee handbook outlining requirements and expectations of your employees, as well as procedures for resolving disputes that may arise among your employees. Some new ventures may find it more economical to utilize an employee leasing company to perform some or all of these functions.
Payroll, Employment, and Income Taxes
Now that you have employees, you will need to see that payroll expenses are funded, either out of capital or revenue, and that payments are made on time, with appropriate withholding and remission of payroll and income taxes. This function is fraught with risk. Failure to meet payroll and to withhold and remit taxes can result in investigations and both civil and criminal penalties.
Many new ventures find it worthwhile to outsource to companies with the necessary expertise to address withholding and remission, but it will be your responsibility to see that the funds are available. Most states provide some form of imposing personal liability upon business owners for unpaid payroll even if those owners otherwise enjoy limited liability through a corporation or LLC.
Office Leases and Equipment
In your prior career you were provided an office, a desk, a computer, IT support, etc. Now you need to arrange all of those for yourself. Who are you going to call when your computer is not performing as you expect? Are you comfortable providing personal guarantees for your office lease and loans to purchase equipment? If you are considering using your home as an office, consider whether your homeowners or condominium association includes limits on home-based businesses.
Professional and Other Licensing
Does your new venture require licensing? Of course, if you are in a licensed profession (healthcare, legal, public accounting, funeral director) you will need to satisfy the applicable requirements in each jurisdiction in which you are rendering services. You may be surprised by the many occupations require licenses in certain areas. For example, if you intend to open a restaurant, you will need to pass the certifications required by both the applicable health department and state and local alcoholic beverage licensing requirements. Are you in a jurisdiction that has a local business license (with related fees) requirement?
Estate and Succession Planning
Prior to this new venture, your estate planning likely was focused on your home, a securities portfolio, and retirement assets such as an IRA funded by the rollover of your employee 401(k) account. Now, you have (or soon will have) an active business to address in your estate plan. In conjunction with that, you will need to consider what a succession plan for the business looks like.
Starting a second-career entrepreneurial venture can be a great way to leverage the skills you developed as a long-term employee, but it is a different experience from that of being an employee. The attorneys at Stoll Keenon Ogden stand ready to assist you as you take this step.
