By Ralph Coker
Tuesday, May 19, 2009

Q. I lost my job because of the recession and would like to start a business and be self-employed. What are my chances of succeeding?

A. If you need immediate income for living expenses, starting a new business is not a good option. Also if you have large paper losses in your home equity or your stock investments, you shouldn’t risk having to sell those in a depressed market to support yourself or a new business.

Even in good times it takes too long for a new business to become sufficiently profitable to support its owner. The one exception is to become an independent contractor. However, being an independent contractor means you are selling your personal services to customers and your potential income is limited to what one person can do. With that said, recessions can be a good time to start a business for those who are well prepared financially and otherwise. During recessions sales and revenue decline and some businesses in each industry fail. Their customers shift to the surviving competitors.

It also can be a good time to buy a business. Business sales prices go down and, as in all markets, the best deals occur when the market is down.

The prime interest rate goes down during a recession and creates long-term financing opportunities. The requirements for starting a successful business are the same during recessions and in good times. The difference is that during recessions it takes longer to reach break-even and you need more up-front funding and credit to survive to reach break-even.

Successful business ownership requires good business knowledge, management skills and the right personal traits. First, you must know how to produce the product or service for the customers. Second, you need to know the basic business functions including business planning, financial management, marketing, accounting, personnel administration, insurance, taxes and legal business structures. Make sure your temperament matches with your business. Business ownership requires creativity. Creativity increases profits at no cost and gives you a competitive advantage. You need to be able to focus completely on the task at hand but at the same time multitask. Wanting to be your own boss or to be more financially secure are poor reasons for going into business. The reality is you trade one boss for many; customers, employees and lenders. You also trade the risk of losing a job for many years of financial insecurity until the business builds its net worth.