Planning on starting or buying a business, or investing in a franchise, is always risky, but taking on this transition in your 40s and 50s adds a little more importance to the situation. If you're not careful, you could risk the financial security you have worked to develop over the bulk of your working life. On the other hand, you have the maturity, self-understanding, and business expertise to make a business very successful. If this is your first foray into business ownership, it's important to keep a few things in mind so you'll have the chance to reach this success.

Mistake: Not Creating a Plan

Many business owners start their business without a plan. Your plan doesn't need to be volumes and volumes in length, but it does need to contain all the aspects of a business plan and needs to be carefully thought through. Flying by the seat of your pants when you're in your 20s and 30s might be recoverable. It's much less so when you have the financial obligations and shorter time before retirement that you have in your 40s and 50s.

It's never too late to plan. If you started your business a couple of years ago and are frustrated with the growth and amount of work you're doing, contact SCORE or the SBA, or check your contacts for referrals to a CPA and financial planner now.

Outside Financing: What They're Looking For

Most business owners seek outside financing at some point in their business growth. Financing is usually structured as debt or as equity financing.

Debt financing usually comes first for most businesses. Owners often default to personal credit cards and home equity loans because they're easy to establish and many owners don't have the business plan and financials that banks require before making a large loan. Debt that is mixed up with your personal finances can make tracking the business finances difficult. A better option is a business loan and/or a business line of credit that is related to the business. Many banks will lend up to a certain amount — $50,000 in many cases — to a small business on nothing more than the business owner's personal guarantee and good credit. Rates are usually lower than credit card rates and higher than home equity loans. These business loans are preferable to both credit cards and home equity because they help to build credit under the business.

Owners looking for equity financing — involving selling a share of the business to a backer — need to be ready to share control in the company — not something all owners are ready to do. Equity financing is more complex than debt financing because agreement needs to be created outlining the ownership benefits and responsibility of all parties. In some cases, your attorney might recommend structuring your business in a more formal entity such as a corporation or a limited liability company so that shares can be transferred to others. All of these things could be worth the effort if the capital offered by the equity investor is enough to help make your company grow.

Working with a Partner

Some business ideas are difficult to implement alone, and there are other times when it may be appealing to have a partner in the business. Partnerships are created automatically when two individuals decide to work together — there are no legal filings or special forms required. This, unfortunately, often leads to a situation where a partnership has been created with little planning or communication. When you're working on your own, you don't have the problem of not meeting or understanding another's goals or impressions of the business direction. Working with a partner requires that you both go out of your way to communicate. The best first step for this is to create a written partnership agreement defining your expectations and dissolution plans when a partner dies, is disabled, or wants to leave the business. Your business attorney and accountant can help you with this, and then each partner should have her individual attorney review the document for her benefit.