In a Bad Economy, Should You Start a New Business?

May 16, 2010, By Steve Thompson 1 comment

Times are changing. Starting a business is much different now than it was for your father or for your grandfather before him. Technology has opened up not only opportunities for entrepreneurs, but also ways to ensure your business doesn't fail before it even gets off the ground.

However, if you've been flirting with the idea of starting a new business, you might be hesitating simply because the economy is in the proverbial toilet. Why should you sacrifice your paycheck, your retirement account or any other aspect of financial security on a business venture that might fail?

The truth is that there is never a perfect time to start a new business. Gas prices are up, real estate is down, international commerce has slowed to a crawl, utilities have skyrocketed — there is always something holding back entrepreneurs.

No matter the circumstances, some people fail while others succeed when they start a new business. And even in a great economy, you don't want to leverage your last dollar on a gamble.

The key, therefore, is to start a new business that requires little overhead and meets a demand that you know exists. It is never a good idea to spend all the money in your savings account to get a new business off the ground, particularly if you have a family to think about.

Before you start a new business in a bad economy, ask yourself these questions:

1. Will you have a source of income? Stereotypical gender roles are a thing of the past. When I started my business, my wife was earning a steady and lucrative paycheck while I took the gamble; when I became successful, she quit her job and started her own business. If your spouse is bringing in a regular paycheck, you might feel more comfortable taking the risk.

2. Have you crunched the numbers? A thorough business plan and a detailed budget are necessary to start a new business in any type of economy. How do the numbers add up? Is there a sufficient market base for your product or service? Do you have the necessary tools to get the word out? And can you afford to operate in the red for one to five years until your business takes off?

3. What about geography? Where you live can play a part in the success of a new business in a bad economy, particularly if you're opening a brick-and-mortar location. How is the economy fairing in your city, county and state? For example, Dallas has a strong real estate market, while those in other cities are failing miserably. Do your research.

4. Can you handle the workload? Starting a new business is not a 9-to-5 venture. You'll need to weigh the other commitments in your life — family, social obligations, etc. — to determine whether you have the time.

5. What are you willing to give up? For many men, starting a new business means living on a shoestring budget. You might have to forgo the vacation this year or drop a few of those expensive cable channels. And in a bad economy, you might have to cut even more.

The good news is that starting a new business in a bad economy can actually mean more job security. You can't get laid off or demoted when you're the boss; no one can cut your pay except you. Indeed, many men discover more financial security and stability in entrepreneurship.

The question of whether to start a new business in a bad economy boils down to the same thing you would consider when evaluating investments. What's your risk tolerance? If you're a low-yield bonds kind of guy, becoming an entrepreneur may stretch your comfort zone too much. If, however, you jump into hedge funds and emerging markets, this might be right up your alley.