While previous generations were quite prepared to get a gold watch and ride off into the sunset, times and attitudes have changed. A growing number of Canadians are not content with a life of golf, travel and bird-watching. They are re-entering the workforce — but on their own terms, often as their own bosses.

Becoming an entrepreneur has its own set of challenges, experts say. It often means creating something out of nothing, putting up some of your own capital and, if things go well, patting yourself on the back and enjoying a nice bump to your income. If the business goes south, on the other hand, there’s nobody to blame but yourself.

How does your client become a successful “seniorpreneur”?

Michelle Field, vice president of business banking at Bank of Montreal in Toronto, says there are a number of “must dos” before hanging up the shingle for a new business. The checklist for a client looking to start a new business should include the following:

First, your client needs to figure out what he or she really wants to do. A client may choose to stay in the field in which he or she has worked in the past or may want to go in a completely different direction.

Once that has been decided, the client will have to research the chosen market — including its strengths, weaknesses, opportunities and threats — to ensure it is, indeed, a viable business opportunity.

“You need to determine which areas of the economy are going to grow,” Field says, “so you can tell whether a particular business offers good potential.” She says other “seniorpreneurs” can often provide valuable real-world advice.

If the client decides to jump in with both feet, there is a good chance financing will be needed to get the new venture started. Even though the client is technically retired, tapping RRSPs should be the option of last resort, says Daryl Diamond, president of Diamond Retirement Planning Ltd. in Winnipeg and a specialist in retirement income planning.

“That is very expensive financing,” he says. If the client is in the top bracket, he or she may have to take out $2 to get $1 to fund the new business. “The amount of the withdrawal would be added to other income for the year and may push your client into higher marginal tax brackets. Furthermore, for people over age 65, it could increase or trigger an old-age security clawback, which would be a form of double taxation.”

Diamond also notes clients will never be able to replace that RRSP room once they’ve withdrawn the money. “It’s gone forever,” he says.

Instead, he recommends other options. A client could borrow against the cash value of a life insurance policy, for example. This amounts to a tax-free loan, which may not have to be paid back in the client’s lifetime.

“It could be paid off by the death benefit of the policy before the remainder is forwarded to the beneficiaries,” Diamond says. “The interest on the loan is simply capitalized while the loan is outstanding. This is effective from both a tax and a cash-flow perspective.”

Another alternative is taking out a loan against the equity in the client’s home. Some loan arrangements, such as Manulife Financial Corp. ’s Manulife One account, are very flexible, he says. No income qualification is required for loans up to 50% of home equity and no repayments are needed, provided the approved loan amount is not exceeded (interest is capitalized).

“It works like a reverse mortgage, but better,” Diamond says.

An ideal scenario, he says, would be if the entrepreneur had a lump sum of capital, as well as a balance on the mortgage. With an account such as Manulife One, using the lump sum to pay down the mortgage debt will free up room in the line of credit.

“The interest on the loan would be deductible, whereas it was not deductible on the mortgage balance,” he says.

Business Development Bank of Canada has loan programs that fund start-up companies up to $150,000 or more, depending on the security, such as a building or equipment, says Len Trotter, BDBC’s Winnipeg branch manager. He says a financing rule of thumb is to have a 3:1 debt/equity ratio.

Trotter adds that seniors find one of the best features of being entrepreneurs is the flexibility of hours and workspace. It’s not uncommon for people to relocate to the cottage, come into town for a day and return to the cottage to write a consulting report. “Money isn’t the biggest issue any more,” he says. “Your client’s income now supplements his or her lifestyle.”

@page_break@Running a business is sometimes compared with flying a plane: just because it’s up and running doesn’t mean the client can stop paying attention to the environment. That’s why, Field says, the business plan should not collect dust once the business is a going concern. It should be reviewed at least once a year to ensure the business is structured in the most efficient way.

“Often business people are so busy running their businesses that they tend not to look at new competitors, changing economic conditions and what’s going on around them,” Field says.

Diamond says advisors can add value for clients by giving tax planning advice and making suggestions that may help achieve family objectives. For example, paying out dividends to family members could be a gifting strategy during the business owner’s lifetime.

Advisors can help with estate planning and insurance, or they may be able to refer clients to succession professionals when the entrepreneur wants to retire “for real.”

SMALL BUSINESS BOOM

According to a report released in September by CIBC World Markets Inc. senior economist Benjamin Tal, the number of small businesses run by older Canadians has risen by 35% since early 2001, making it the fastest-growing segment in the small-business sector.

“These ‘seniorpreneurs’ currently account for a record high of one in four self-employed individuals in Canada and constitute more than 30% of the total workforce over the age of 55,” Tal writes.

He notes the growth in self-employment among older women has outpaced that of men since the early 1990s, with the gap widening significantly in recent years.

The greatest increase in business creation by seniors was in Western Canada, with British Columbia leading the way and Alberta following close behind. IE