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Video: Women entrepreneurs on the rise

TODAY
updated 9/24/2007 9:44:10 AM ET 2007-09-24T13:44:10

Starting your own business can be daunting, but if you have an idea of the obstacles you could face you’ll be well ahead of the game. Lots of folks think they have a great idea for a business — selling customized gift packages of your signature-recipe brownies, creating a fundraising consulting firm for nonprofits, or opening a health and wellness store catering to new moms. You think you’ve come up with a terrific enterprise, one that you’re really passionate about, but do you really know what it takes to launch this business?

CNBC’s personal finance correspondent Sharon Epperson, author of “The Big Payoff,” poses the questions you need to ask yourself — and some tips on how to find the answers.

What do you need to know before you start a business?
What you need to know is not always apparent until you start developing your business. You’ll likely make many mistakes and learn from them. But to make that learning experience less painful, follow these steps before you start your business.

Build your cash reserve
Unless you already have substantial savings or have recently received a windfall, you’ll probably need to start saving money for your business for a few years before you launch it. Plan to put any extra money that you get from a raise, bonus or stock options into a special fund for your business.The amount of money you’ll need will likely vary depending on the type of business and the location. Dawn Casale, owner of One Girl Cookies in Brooklyn, says her advice to budding entrepreneurs is always: “Save double what you think you’ll need because it goes so quickly.”

Know your credit score
Pay off as many bills as you can, save money, and get a copy of your credit report to understand what it says about you. “Know, protect and correct your credit score,” says Nell Merlino, president and CEO of Count Me In, which provides micro-loans for women entrepreneurs. (Count Me In and OPEN by American Express provide money, mentoring and marketing opportunities for entrepreneurs to help them grow their businesses to a million dollars or more.)

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Know your financial risk
How much money you can afford to lose? If you put $20,000 of your savings toward your business, are you prepared to lose it if the business isn’t successful? Will you still be able to cover your personal expenses and meet other financial goals? “You may be excited about your idea, but you need to be practical,” says Judith Rosenthal, a financial advisor with Ameriprise in New York. “The risk should be in line with your financial situation. If you lose $50,000 or more in savings, will you still be able to pay your mortgage and other household bills and also save for your retirement and kids’ college education?” Don’t lose sight of your other financial goals.

Don’t be afraid of debt, but use it wisely
You’ll likely use a combination of your own money, friends and family, credit cards, bank loans and other financing. Make sure you understand the terms of bank loans or other types of loans. Know that home equity lines of credit and credit cards have variable interest rates, which could increase substantially over time.

Open a separate account for your business
It’s important to always know how much cash you have, how much you’re spending and how much is coming in, Merlino says. The best way to do that is to separate your personal and business financially.

Finally, prepare to work hard
If you’re not geared up to work hard, don’t do it. If you treat it like a hobby, it will generate hobbylike revenue, says Susan Sobbott, president of OPEN from American Express, which provides access to working capital for small business owners and their companies.


How do you start a business?

1) Base a business on what you know
Create an idea for a business based on what interests you and what you know. If you are not passionate about the business, customers and prospects will sense it.

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2) Target your market
Keep an eye out for unmet needs. If your community lacks a product or service that you have the ability and willingness to provide, you might be onto a kernel of a business idea. Talk to prospective customers, experts in the field and leverage every available resource. If possible, conduct online surveys, phone interviews and face-to-face discussions to sharpen your idea.

3) Be flexible
Once you have an idea, be prepared to modify it — flexibility is critical to being a small business owner. Ask any owner — a few unexpected experiences likely brought them to their destination.

4) Create a short business plan
“Your business plans should spell out who you plan to sell to, what they will pay for products and/or services, how your offering is unique, how you will reach customers and how you will turn a profit,” says Susan Sobbott, president of OPEN from American Express. Five pages is enough, she says, and the process of creating this document will help to polish your idea further and create a plan to get started. Network with members of the local chapter of the National Association of Women Business Owners (www.nawbo.org) in your area or visit a Small Business Administration’s Women’s Business Center (www.sba.gov) to help with research for your business plan.


CNBC personal finance correspondent Sharon Epperson is the author of “The Big Payoff: 8 Steps Couples Can Take to Make the Most of Their Money — and Live Richly Ever After" (HarperCollins). 

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