The Retirement Business Startup Story

Starting a retirement business or side hustle is no different than starting a business any other time of your life, there are no special treatments. However, there are additional caveats to look out for.

In some of our previous posts, we mentioned starting a business when you retire as something that can have positive results with regard to retirement. That is true, but it does not mean that it is easy. And you must still take into consideration the many reasons startups fail and plan for that.

Buying a job rather than a business.

It a common for people to not understand the difference between being self-employed and being a business owner. In both cases you are still going to work, no doubt about that. Being self-employed means you will be doing all the work, and without your input, the business will not exists.

Where being a business owner, your work becomes overseeing and managing the operations of your business. That means that other people, your employees, will be doing the work, and even if you stop doing your work, the business will carry on.

It goes without saying, different businesses require different amounts of effort from the owners. A classic South African example happens regularly on the South Coast. If you keep an eye on the business market there, you will find many hospitality-type businesses for sale, always.

This is because people go to the coast for holidays, sit in a cosy little restaurant or coffee shop, and see the sales happening. The waiters are moving around doing their thing, and often the owners will be hanging around talking to customers. 

It is easy to dream and think, “That is Perfect”, hang around all day and watch the money come in – That is what I want to do when I retire. And many people do!

So you spent your life as an artisan, or maybe in an office job, and your experience with the hospitality trade goes as far as enjoying the tranquil ambience. And that is where the problem comes in. Hospitality is most like a much more hard-working hands-on industry that requires much more effort than most other jobs.

You can’t see this as you are observing from a customer’s point of view. The whole thing is designed to make you comfortable. Under the hood – or behind the scenes, lies a truckload of tasks and deadlines and hard hard work that goes on for many hours per day. Inventory, staff management, banking, registrations and licensing, equipment issues, losses and theft and the list go on and on.

Still, every year people buy cosy little restaurants and fail horribly. Then in response try and sell the business quickly and eventually end up losing their investment and end up broke.

Retirement business startup considerations.

There is a lot you can learn from the short story above. Starting a business may be your dream, but it is everything else but being a dreamy situation. Here are some of the lessons:

1. Choosing the right type of business.

Going into a new type of business you have no experience in is a guaranteed failure. You will end up getting a new surprise every day, expensive surprises that eat you up financially, one small dead fryer at a time.

The takeaway question here to ask yourself is, do you have the energy, finances and willingness to go through a 3-year learning curve?

2. Using your entire retirement savings.

Chasing your dream until you don’t anymore. It is easy to convince yourself, you will make your money back. Especially if you are talking to the person selling the business…

They will always tell you the upside and most definitely you will not need too much convincing. After all, this is your dream, right? Ever wondered why they are selling, getting out, cutting their losses or in plain English – running away?

This is the part where you have to snap out of it and realize, that you are investing your life savings in a risky endeavour. And still, people do this daily.

3. Taking too much risk

This brings us to the next point, taking too much risk. I am not saying you should not buy a business, but rather stating that it is important that you know what you are buying into. And who knows, maybe you are sitting on a goldmine and getting it for a bargain, who knows?

There is always someone that knows. Get a second opinion, a third and a fourth and many more. Get as many outside opinions, from everyone that can give you insight into what you are buying. This can start with talking to employees all the way through to working with a professional business consultant.

Build up a study of this business you are venturing into and make sure you understand the risks, all of them. Financial, work requirements/demands to make it work, time constraints, everything. 

All of this means that you will have to spend some money to do a study, create a business plan and come to the right conclusion. This brings us to the next point, money.

4. Getting a loan.

You have done the homework, know the risks involved and decided that you are buying your dream spot with a balcony overlooking the beach. But, you are not going to do this with your money. 

Enter – OPM: a known acronym used by many that stands for “Other People’s Money”. The “Other People” can be investors or the bank. Bringing in investors or getting a loan can be good but it does not remove any of the risks. In reality, it increases the risks and at the same time reduces your profit margins drastically.

A positive to involving investors or banks can be that they may be harder to convince and you will have present a much more feasible business plan. At this point, you start doing the math and add up the replacement values of everything you are buying as part of your dream restaurant/coffee shop at the coast.

Quickly you realise that you are buying a place that you can build for a third of the cost – brand new with all the equipment. Where does the other 70% of the cost come from?

A thing called “Goodwill” shockingly is in most cases the way bigger part of the price than any other tangible good that you are buying. Sure, location, location and location are the first three most important rules, but Goodwill is a deal breaker.

Your dream coffee shop, is busy and has been for years and currently making money. The part you may not be seeing is that you’re there during the holiday season, the only busy 40 days of the year. The rest of the year, that shop relies on its regulars. 

Patrons frequent that establishment for reasons like, they know the owner for 30 years or they have become friends with the owner or they do business with the owner or they are family of the employees. 

Whatever the circumstances may be, the moral here is that the current customer base is dedicated to the current owner of the business. They spent years building it up – it shows in the cash flows you were shown. Just remember this – You are paying for that intangible part of the business too. And it can vanish as quickly as you are getting the keys.

These are things that you will have to address and have solutions for in your business plan. Without feasible remedies well documented and proven to work, you will most likely not get the banks or investors interested in your venture.

Other things to consider. 

Here is a list of pitfalls and things to watch out for, that apply to any business startup, retired or not:

• No control systems are set in place.
• Doing it just for the money.
• Failing to plan.
• Thinking too small.
• Not having a digital strategy.
• Forgetting business success comes down to marketing.
• Trying to cost-cut your way to success.
• Not knowing your competition / competitive landscape.
• Thinking you will “sell the business” as your only retirement plan.
• Picking inadequate tech tools.
• Rushing your idea without validating it.
• Being afraid to fail.
• Not making a business plan.
• Being disorganised.
• Not defining your market and target audience.
• Avoiding contracts.
• Hiring too soon.
• Underestimating capital requirements.
• Wasting money.
• Giving yourself the wrong salary.
• Undervaluing your product or service.
• Expanding too quickly.
• Not implementing a proper bookkeeping process.
• Not creating a marketing plan.
• Hiring the wrong people.
• Overpromising or underdelivering.
• Underestimating the demands of the business.
• Bringing On Too Many Investors.
• Attempting to Begin Multiple Ventures.
• Not using personal networks as an advantage.
• Not listening to customers

In Conclusion

Starting a retirement business, or any business can be both good and really bad. It is up to you and your willingness to make it work. Ask the right questions, don’t dream too much and look at the reality, make your business plan and stick to it. Above all, if you can do it on your own, or with your spouse, Good.