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Starting a Good Business in a Bad Economy
By: Stephen Nelson

Starting your own small business takes guts. The decision to start your own small business demands that the entrepreneur act courageously, think clearly and take risks.

Starting a business in a recession requires double doses of courage, clear thinking and risk taking.

Fortunately, small business owners and managers can use some simple tips to plan and think more clearly in a recession:

Starting a Business Tip #1: Avoid Dated Business Opportunities

Some of the business opportunities that worked in the sub-prime mortgage economy don't work well or probably don't work well anymore. Be sure you consider this possibility as you plan.

Some of the "dated" opportunities are obvious, of course. Unless you've been marooned on a desert island for the last year, you know that a sub-prime mortgage company is not a business that works anymore. You may know that the investment banking business in some senses doesn't really exist anymore.

Now these two examples of "dated" business opportunities may be obvious. But very probably, other "dated" business opportunities also exist. Accordingly, don't assume that because some business opportunity has worked in the past, the business opportunity will continue to work in the future.

The landscape has changed. And "dated" opportunities may have produced profits only because the economy was rev-ed up or because money was cheap or because of some other factor in the industry.

Starting a Business Tip #2: Avoid Businesses that Require Leverage

During the recent easy credit days, with only a bit of finagling, you could borrow money to buy all sorts of things you could not really afford.

You could, for example, buy a house even though you had no down payment, assets or verifiable income. And you could buy a business even though you actually had no liquid capital to invest or industry experience.

Easy credit meant that lots of business and investment opportunities existed mostly because of financial leverage. One easily borrowed money from some banker. If you could borrow money for 6% and reinvest those funds in some venture earning 12%, you looked like a financial genius.

You probably want to avoid these sorts of "financial leverage based" opportunities. For one thing, lenders (thankfully) show more caution today than they did a few years ago. For another thing, the good business opportunities based largely on financial leverage may be mostly picked over.

And a final important point: In the rear view mirror, the entrepreneurs and investors using financial leverage weren't as smart as they or their bankers thought. Leverage didn't work after the credit crisis meant banks got nervous.

Starting a Business Tip #3: Recognize & Exploit Great Bargains

With all the economic doom and gloom, one can perhaps be forgiven for feeling pessimistic about starting a small business. But none of us want to forget that wonderful opportunities and bargains exist for small businesses simply because of the recession.

For example, small businesses may be able to hire great people who would in a strong economy work instead for some big company. Think, for a moment, about all the super-smart, talented people who used to work for one of the now defunct mortgage lenders, home builders or investment banks.

Or think about clients or customers who still absolutely want some item, but now are scrambling around looking for a new solution because a major supplier went toes up.

And think about negotiating with key suppliers and big vendors when the economy sucks.

You'll probably never get as good a price on office space, fixtures or equipment as you will when times are tough.

Starting a Business Tip #4: Think Beyond the Recession

A final important point: Even if the current recession lasts for years, the current recession will still eventually end. At some point, the economy will shake-off the credit-crisis hangover. And one obviously wants a business that will still work when times get good again.

Article Source: http://www.sbhummer4u.com/articles

Seattle CPA Stephen Nelson is the author of two recent ebooks about starting a small business: Starting a Cleaning Business and Starting a Catering Business. Nelson also wrote the two bestsellers, Quicken for Dummies and QuickBooks for Dummies.

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