Seniors Running Small Businesses More Likely To Thrive
Seniors: Experience Counts
Small businesses founded by seniors aged 55 and older survive at a higher rate compared to companies started by younger people.
The key difference is that seniors are more conservative in their approach to managing cash. This, according to results by the JP Morgan Chase Institute.
Their results are based on data from 138,000 businesses with fewer than 500 employees. About a third of those small companies — including 14 percent of start-ups — are owned by people 55 and older.
Firms with older owners are more likely to survive. In the first year, a 60-year-old entrepreneur’s company has an 8.2 percent probability of going out of business, compared with an 11.1 percent chance for a 30-year-old founder and a 9.6 percent risk for a 45-year-old. The gap decreases over a three-year period but remains statistically significant.
“Young people under the age of 35 start about one-third of new firms, but their businesses tend to exit more quickly than small businesses with older owners,” a report on the study says.
Most importantly, the report also says that older entrepreneurs are better at cash management.This is a major factor in business survival.
For example, companies with age 55-plus owners typically have a capacity of 17 “cash buffer days” — that is, days in which the company could cover its expenses if it didn’t take in any revenue. This compares to 12 days for founders 35 and younger, and 13 days for those between 35 and 54.
Finally, companies with older owners make up the biggest share of small companies in the metal and machinery sector (47 percent). In high-tech manufacturing, it is 43%, real-estate 41 percent, and 40 percent in health care services.
Younger business owners were more concentrated in personal services, retail and restaurant fields.