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Seeding Your Start-Up

Smart ways to fund a new business venture

a clay planter with two growing plants in it and a plant label that says start up

Photo illustration by Domenic Bahmann

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Great news for the entrepreneurially minded: Your 50s are a prime time for a new venture. A business started by a 50-year-old is nearly twice as likely to succeed as one begun by a 30-year-old, according to a 2018 study. But funding a new enterprise can be tricky. How much of your savings can you wisely risk? We asked experts for some rules of thumb.

1. Set a realistic budget. Determine your operating expenses and how much you can afford to lose, advises Shakenna K. Williams, executive director of the Center for Women’s Entrepreneurial Leadership at Babson College in Wellesley, Massachusetts. Set milestones and make a backup plan in case you don’t meet them.

2. Build a financial cushion. You’ll need both operating capital and money to live on, notes Norm Sherman, a certified mentor for the Service Corps of  Retired Executives (SCORE) in New York City. Plan for the business to produce a positive cash flow within one year and to be self-sustaining within two years, he recommends. 

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3. Keep your day job — at first. Besides generating money for your business, being employed can make it easier to get a business loan. Hang on to your paycheck until you have to let it go.

4. Tap a 401(k) only as a last resort. An IRS process called Rollover as Business Start-up (ROBS) lets entrepreneurs withdraw from their retirement accounts. And many employers allow workers to borrow against their 401(k) balances. But before you consider either step, consult a financial planner to avoid surprises.

Sharon Waters, a former CPA, has written for and other publications.

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