Be wary if you’re planning to start your own business

Be wary if planning to run your business Q:I have been out of work for more than nine months and have little hope of securing a job in the near future. I have been thinking of starting a business of my own and would appreciate any insights you can offer. -- Philip C., Midlothian

Answer: Philip, you have not indicated what kind of business you wish to start, so I will try to offer some general advice for your consideration.

First of all, if you don't have at least nine to 12 months of working capital to tide you over until the business begins to generate an excess of income over expenses, don't do it.

Second, if you don't have first-hand experience in the type of business you are interested in forming, don't do it.

And lastly, until you have composed a written business plan that addresses your purpose, your competition, your strategic marketing strategy and your sources of working capital, don't invest the first dime.

Many would-be entrepreneurs are drawn to businesses they like to patronize or ones that are the cheapest and easiest to start.

Instead, you should zero in on one you are intimately familiar with and that is underserved in the marketplace.

It is said that "all that glitters is not gold," and this is true for many too-good-to-be-true businesses.

Some examples could include:

• Restaurants: Unless you like to work long hours and deal with unreliable help, stiff competition, local bureaucrats and seasonal slowdowns, restaurants may not be your cup of tea.

• Direct sales: It's a tempting pitch: "Work from your home, selling cosmetics, cooking and cleaning products." A harder look, said Ken Yancey, CEO of SCORE National, shows that the few making the big money are the ones recruiting others to do the actual selling of the product. Many wind up with a basement full of stuff they can't sell.

• Online retail: Get rich by selling things through eBay or Amazon.com. But as online commerce ages and these sites fill up with more established retailers, it's much harder for new, small sellers to compete for attention and generate a viable income.

• Franchise ownership: The idea of being handed a proven business plan without the uncertainties and headaches that come with building a business is alluring.

But too many people don't understand the risks associated with franchising and sign restrictive agreements without thoroughly researching the franchiser and their contractual obligations, Yancey said.

Some franchisers allow franchisees to open stores that are to close to each other. Or they require so much in royalties, fees and other operational costs that it's very difficult to be profitable.

Still others may make it extremely difficult to get out of the contract. Some franchises can prove to be a good investment, but you must first do your homework.

Volunteers with the Richmond Chapter of SCORE, Counselors to America's Small Business, answer questions from small-business owners and managers. Go to http://www.richmondscore.org and click on the link to "Ask SCORE." A counselor will respond within 48 hours. Select questions and answers will be featured in Metro Business on the second and fourth Mondays. To learn more about management issues facing small businesses and SCORE's workshops, go to http://www.richmondscore.org or call (804) 771-2400, ext. 131.