Entrepreneurial firms are alive and well in the United States, although the kinds of people who start them are changing. That’s because more and more “grayhairs” are passing up the golf course or sitting in front of the tube all day in favor of starting a new business. Their efforts are pushing up the number of start-ups.

And in the process of beginning a business, many of these entrepreneurs—often people starting second careers or people not born in the United States—will need help, and this is a new opportunity for the advisory industry.

Those are the assertions of William Hortz, the president and dean of the Tampa, Fla.-based Institute for Innovation Development, which studies entrepreneurial activities. 

“The U.S. population is aging, and so are start-ups,” Hortz says. “The biggest gains have been among older entrepreneurs, with 55- to 64-year-olds making up 26% of the enterprises.” 

Parents Do It Better Than The Kids

The Kansas City, Mo.-based Kauffman Foundation studies entrepreneurial activities. In its “Kauffman Index Start-Up Activity National Trends” report on start-up activity, it recently found that the rate of entrepreneurship among older people is growing faster than it is in other age groups.

“The aging of the U.S. population combined with the increasing rate of entrepreneurs among individuals aged 55-64 have shifted this group from making up 14.8% of new entrepreneurs in the 1997 index to 25.8% of all new entrepreneurs in the 2015 index,” says the report. (See Sidebar 1, “Who Owns a Business or Is Starting One?”)

“We’ve really been seeing this trend in the 55-64 age group over the last decade,” says E.J. Reedy, a senior fellow with the Kauffman Foundation.

Kauffman officials also say would-be entrepreneurs are taking the risks of starting a new business not out of need but because they see an opportunity.

Reedy adds that the 55-64 group has the highest percentage of “opportunity” entrepreneurship. That means a person is more likely to start a business not because he or she is in need of money or a job but because of a perceived opportunity for a successful new business.

Entrepreneurship Makes a Comeback

These aging boomers, along with immigrants—the Kauffman report said immigrants are more likely than the native born to start a business—are improving the entrepreneurial climate of the nation, according to the foundation. 

The 2015 index registered its biggest increase of start-ups in the last two decades. (See chart above.) “People are following opportunities more,” Reedy says. “They are slightly less risk averse. During the height of the last recession, the run-up was more in people forced into entrepreneurship.” 

But young people are less and less a part of this comeback.

Where Are Los Ninos?

Why isn’t the younger generation showing the same entrepreneurial bent? Hortz says many potential young entrepreneurs are still trying to establish themselves. They “have been hampered by student debt and an inability to get resources for businesses.”

By contrast, members of the older generation are much more likely not to have these problems, he says. They are also more likely to look for a financial professional to help them start a second career. 

“Advisors can help their clients becoming entrepreneurs by guiding clients to prepare mentally and give them ongoing coaching and encouragement,” Hortz says. They should also work with them to find potential clientele so the business can succeed, he adds. 

Do You Want This Business?

The advisor who wants this business must be prepared to offer numerous services, he says. One is to help the entrepreneur make needed professional alliances as well as help find the client base that will enable a start-up to survive and prosper. 

Almost all aspiring business creators have had a common problem, he adds. “Even some of the most successful
entrepreneurs initially faced problems in finding capital.” Here, he notes, is an opportunity for the advisor to develop a strong relationship with a
start-up, a relationship that could last for many years.

But there is something much more important, money professionals say, than helping a new business owner find capital or make professional connections or even locate the right potential clientele. The most important thing is basic: to find out if the client is serious. Does he or she understand the myriad challenges and dangers of starting a business? 

The answer to those questions, advisors say, can determine whether the client is rushing into a new, happy life or headlong into financial and personal disaster.

Advisor As Devil’s Advocate

Indeed, those working with these up-and-comers say advisors should play the role of devil’s advocate. They should ensure that the client understands the challenges of starting a business, since many will fail within a few years. (See sidebar, “A High Rate of Failure.”) 

They must remember that they are putting a large amount of their assets, assets that probably made them independent, at risk. “It makes more sense to use non-qualified money,” warns Ken Sutherland, an advisor in Raleigh-Durham, N.C. “And if you take too much qualified money, you will trigger a big tax bill.”

A better tax strategy for starting a business, he adds, is using a smaller part of qualified money, avoiding a high tax rate, and finding part of the seed money in a home equity loan, which can be deductible. But Sutherland, who in his 25 years in the business has worked with various older clients starting a second career, says there is an issue that every advisor who wants this business should address immediately.

“You must first ask the client if he is ready for this. Does he realize what this is about? Is he ready to do this? What does he hope to accomplish?” Sutherland says. He adds that the client must have a passion for starting a business. 

Love That Job

Kauffman Foundation researchers agree about the passion element. The foundation has found that some of the most common reasons people take risks and start a business is they love being their own bosses and starting a project from scratch, as well as working on small teams. Other common motivations are that they want to solve a problem they faced or that they saw potential customers for a certain product or service.

Still, the client should consider all the financial ramifications. “What if the business fails? This is a very important question that you must ask,” says Lou Desepoli, an advisor in Port Jefferson, N.Y. 

The tax implications of a start-up can also be a big headache, Desepoli warns. They include a higher income tax rate if one takes a big chunk from a qualified retirement account. It can also mean lower Social Security payments if one has started collecting an income from a new business.