If you're ready to go it alone and have the financial means to reduce your income for a time, starting your own business may be a great new life chapter for you. Especially if the new business will help you create a lifestyle to keep you employed longer into your 60s and maybe 70s, taking a few years off from investing in an employer's retirement plan to invest in a small business could be a great opportunity.

The Planning Process

Working for yourself may sound like a great idea, especially on the days when your boss is driving you crazy and your coworkers are trying your patience, but it's important to remember that starting a business will probably be much harder than continuing what you're doing now. Writing a business plan and engaging in the tedious projections of cash flow and investment return is the perfect test to see whether you'll be able to commit the energy and time needed to start from scratch.

If you're still working or consulting, now is the time to enroll in a business planning class or engage your advisors (see www.score.org or www.sba.gov for help) and start planning on your own. The business planning process will step you though defining your product or service offering, pricing, marketing, and cash flow. You'll get the chance to think through your operations and staffing needs and will get a good understanding of your financial commitment. Many advisors suggest you decrease your earnings expectations by one-third and double your expense projections to “stress test” your projections.

Financing

Almost all small businesses are started with a large part of their funding from the founder. You can supplement your own contributions with bank loans, credit cards, and lines of credit, but be ready to personally guarantee repayment of anything you borrow.

Some businesses take on financial partners early in their growth. If you're skilled in these types of negotiations and have sound contacts, this could be a good way of reducing your risk while still meeting the business's capital needs. Silent financial partners — if they're willing to remain so — could also present a way for you to continue receiving a salary while you're starting the business.

As Part of a Retirement Plan

At the start of your planning, consider whether your business will be a salable asset that could supplement your retirement nest egg, or whether it's a lifestyle business that will help you to earn income into your 60s and 70s — beyond the age you would have worked for another employer. Understanding which type of business you're creating will help you make decisions about growth and investment that otherwise might seem unclear. For example, if you're planning on building a lifestyle service business, you might minimize the number of other principals you hire so that you can focus on building your own customer base. If you're planning on selling the business, you might increase the number of principals to give the business more value after you retire.