It is a common perception that the world of business is dominated by a population of young, energetic individuals with a lot of technological know-how. This image is changing, however. There’s no doubt that the new wave of entrepreneurs are just as peppy and tech-savvy, the difference is that they just happen to be seniors.
Senior startups are a growing trend all over the world and with boomers becoming the largest demographic out there, this market will likely continue to grow. Research commissioned by Yellow Pages, which was released in October of 2007, has found that approximately one in six of all new businesses in the United Kingdom are started by people over the age of 50 and that these entrepreneurs contribute more than £24 billion annually to Britain's economy. Although no comparable research was available for Canada, we can assume the trend is very similar.
This research further revealed that the majority of these older entrepreneurs work alone, from home and turn over an average £67,500 per year. Sixty-one percent of those interviewed claimed they regret not having set up their own business earlier in their lives.
So what is the reason for this trend? There are many and they include job cuts, age discrimination, mandatory retirement, staving off boredom, income supplementing, or the chance to finally pursue an idea or dream that would have otherwise been impossible while working a regular full time job. Self-employment allows retirees to continue working and earning an income, but on their own terms and schedule.
Many retirees recognize they have a wealth of knowledge and skill that they can still market. Ironically, such expertise is often supplied to former employers. In my practice, I see a growing number of clients over the age of 55 establishing their own consulting businesses and contracting their services to their former employers. Not surprisingly, many former employers welcome this arrangement. With the knowledge and skill these individuals have acquired over the course of their careers, their productivity and efficiency may surpass that of a younger, less experienced workforce.
Many businesses prefer contracting with their former employees because their services are provided on an as-needed rather than a full-time basis. This saves the former employer from hiring and training new full time staff to assist with projects or tasks, which may be temporary in nature. This arrangement is also beneficial to employers because the contracting former employee is paid a fee rather than a salary, which saves on costs such as group benefits and statutory deductions.
If you are planning on starting your own business, there are several considerations that should be addressed at the outset. Some of these considerations are discussed in this article. Careful planning and availing yourself of professional advice will go far in ensuring the stability and success of your business.
Sole proprietorship vs. partnership vs. corporation
An entrepreneur must choose from the three main forms of business organizations for the operation or his or her business: the sole proprietorship, the partnership, and the corporation. Each of the three entities is treated differently at law so it is important to choose the one which will protect and benefit you most.
A sole proprietorship is a business generally owned and operated by one individual. The owner has possession of the business assets and is responsible for the liabilities of the business. The income or loss of a sole proprietorship is combined with the other earnings of the proprietor for income tax purposes.
A partnership occurs when two or more individuals or corporations join together to operate a business. Generally, each partner is personally responsible for the liabilities of the partnership although the extent of such liability can by modified by agreement among the partners or by some partners being "limited partners". The amount of liability for limited partners is limited to the debts of the partnership up to their level of contributions.
A corporation is a separate legal entity, existing under the authority of either federal or provincial law. A corporation has almost all the same legal rights of a natural person, meaning it can acquire property, borrow money, enter into contracts, and sue or be sued. A corporation's money and other assets belong to the corporation, not its shareholders.
What makes incorporating so attractive to entrepreneurs is that a corporation is responsible for its own debts and the officers and shareholders of a corporation are generally protected from the liabilities of the corporation. Although there are usually higher start-up costs associated with a corporation, operating a business using a corporation may offer certain advantages. Corporations are taxed separately from their owners and the corporate tax rate is generally lower than the individual tax rate.
Registering with Relevant Tax Authorities
New businesses are required to register with the relevant tax authorities. Canada Revenue Agency (CRA) assigns a business number to all new businesses and it is used in connection with a variety of accounts including payroll deductions, corporate income tax, and Goods and Services Tax.
Accounting and Record Keeping
Good accounting and record keeping practices are crucial for the smooth operation and sustained success of any business. Accurate and organized financial records show how the business is performing and influence decisions made by third parties, such as Canada Revenue Agency and lending institutions. Consult with an accountant early on to ensure you are using an appropriate accounting system and that you are maximizing saving opportunities with respect to taxes.
Luckily, computers and accounting software have made accounting practices easier for many businesses. In the early stages of a business entrepreneurs may choose to perform their own book entries. As the volume of business activity grows, so will its bookkeeping commitments. If bookkeeping commitments cause you to divert too much of your attention from other business operations, it may be time to engage the services of a periodic or full-time bookkeeper.
A business that provides goods and services must collect and remit certain “commodity” taxes. In Ontario, businesses that provide goods and services and have taxable sales greater than $30,000 annually must collect and remit the Goods and Services Tax (GST). The Ontario Retail Sales Tax (ORST) is collected on the supply of certain goods and services.
All businesses must pay income tax. Income tax laws are complex and may significantly impact your business financially. Business owners should consult with professional tax advisors regularly to ensure compliance with income tax laws and to maximize money saving opportunities.
Business owners will at some point need to enter into agreements with other parties. These parties may include customers, employees, consultants, partners or shareholders. Regardless of how well you know or trust the other party, it is important that you seek professional advice and get your agreements in writing. Although oral agreements can be legal and binding, they may be difficult to enforce in court. Written agreements are a much better choice than oral agreements because they clearly set out each party's rights and obligations. This decreases the risk of ambiguities and disagreements.
Most of your business agreements should contain provisions which strictly control the use and disclosure of the confidential information of your business. Examples of confidential information include private customer lists and certain practices or information that is not generally known or easily obtained. It is this type of information which gives your business an advantage over competitors.
Imagine that your business has a private list of customers and that your employees have access to this list. You discover that your sales manager who quit last month is now contacting all the customers From your private list on behalf of a competitor he or she now works for. Unless your business had an agreement with your former sales manager prohibiting the unauthorized use and disclosure of such confidential information, you may not be able to stop them from using your customer list. Confidentiality Agreements, Non-Competition Agreements and Non-Disclosure Agreements are necessary for preventing this and other types of undesirable outcomes.
Business owners understandably focus much of their energies on planning for growth and success. Keep in mind that it is just as important to plan for succession. Business succession considerations include whether, in the event of illness, death or final retirement, your business will cease operations or continue to be carried on by others. If it is to continue operating, will it go to certain family members or will it be sold to a third party such as a non-family employee? Which family members are best capable to continue operating your business? Planning for these circumstances early on with the help of qualified professionals will facilitate a smoother transition regardless of what you decide for the future of your business.
Frederick Hudson Ecker, former Chairman of Metropolitan Life once said, "I don't think anybody yet has invented a pastime that’s as much fun, or keeps you as young, as a good job". There is a lot of truth to this statement. For someone who enjoys working during his or her older age, retirement does not need to represent the end of a productive life. For many individuals retirement is an opportunity for transition and reinventing oneself. Entrepreneurship is one adventurous option that allows retirees to continue using their time and talents in a meaningful and productive way. Our society is fortunate and advantaged to receive ongoing contributions of skill and expertise from these ambitious older entrepreneurs.
Author: June Wright, © Nelligan O’Brien Payne LLP 2009
[This article was originally published in the March/April 2009 issue of Fifty-Five Plus Magazine.]