A girlfriend of mine has asked me to review a business plan, and this has made me think of the tough questions you should ask yourself before starting or buying a business.

1. What is your passion?  You are much more likely to succeed at a business venture if it is based around something you love and are passionate about.    Likewise, you need to play to your strengths and know your limitations.  I may love baseball, for example, but I won’t ever realistically play in the major leagues.

2.    What do you know about this business niche?  There are so many people who think “I love to cook, Let’s open a restaurant!”  or “I love to Shop, let’s open a store!”  No, No, a thousand times, no.  Loving to cook is not the same thing as the restaurant business, and loving to shop does not give you very much information about how retail works.  These are not the same thing at all, no matter how romantic the idea strikes you.

The restaurant business, for example, is tough.  You have high spoilage rates.  You need dependable staff, in an industry with really high turn over.  The insurance is high. The workman’s comp rates are high, because people are always getting cuts, burns or slipping on something.  You have to deal with health inspectors.  Then, there’s cooking quickly, on demand, rather than when you feel like it. This quickly gets to be a job, not a passion, and can quickly rob all the fun out of your love of cooking, permanently.

3.    Do you have enough capital (money and personal energy) to see you through rough times, or are you looking for a quick, money making opportunity? 
If you are looking for a quick return on your dollar, invest in the stock market.  If you are looking for a job, something to occupy all your time and effort, and much of the free time of your family as well, then start a new business.  If you are just looking for an investment, buy money market funds, stocks, or do something else.  Even real estate and fix & flip homes, as much energy and sweat equity as they take, are a much better deal than opening a store, for example.

Building a business means building a reputation.  I have seen more small shops and businesses go under because they are under-capitalized- not enough cash is around to see the business through the development phase, and it folds before it really has a chance to take off.  Or the people involved just get worn down and exhausted, and have to give it up because it threatens their emotional and fiscal solvency.

4.    Is there a way to accomplish the same thing “on the cheap”? 
For example, a friend of mine owns a yarn store.  It’s in the basement of her house.  She has a group of knitters that come to her house to socialize, and purchase tons of yarn at the same time.  The rest of her business takes place online, through a website and Ebay.  She has the cost of her inventory and her website, but she doesn’t have to pay rent, nor does she have to employ anyone else, except maybe at crunch times, to meet all of her orders.  No rent, no salaries, no worker’s comp- she still has a yarn store, but so many fewer headaches than if the business was a traditional bricks & mortar type of business.

5.    What is it about this business opportunity that intrigues you?
  If you are thinking of buying a shop, for example, are you in love with the idea of going places and buying cute things and then sharing them with others?  Fine, but who runs the store when you are away?  On vacation?  Who do you trust with your money and livelihood?  What happens if you get sick?  On holidays?  Look at your underlying motivation- why does this opportunity sound or probably more likely,  feel like a good idea?  Is the impact of this feeling enough to see you through inevitable disappointments and difficulties any business faces?

6.    Think About The Worse Case Scenario. 
What would happen if the business failed?  If you lost your whole investment into it?  How much time are you willing to give to this venture to ensure it’s success?  One year?  Five years?  You should have some markers of success and failure before you go into it.  Are you looking to make a living and feed your family on this business, or is this really a hobby?  Are you better off getting experience working for someone else in this industry before trying it on your own?

7.     Be Careful Mixing Money and Relatives/Friends.
  One of the first things you learn in law school is “Where there’s a will, there’s a relative.”  This means whenever money is involved, people come out of the woodwork, and quite often, there are dramatic fights over resources.  It is great to have a business partner, especially a close friend.  This can see you through all sorts of rough times, but you also have to have clear boundaries between business and pleasure, otherwise, trouble is on the horizon.

Will you feel resentful if your friend is going on vacation while you mind the store?  Who takes off on holidays?  Are you equal partners?  Who makes the final decisions?  Who has to put in what money up front?  Is someone putting in all the money, the other all the labor, and how will you both feel about this in the future?  Can you have frank, honest discussions with this person, even about bad stuff, with no hard feelings on the other side?  Having a business with someone can be like getting married- you have to be there, for better and for worse, not just for better.

And as you consider having a partner or relative help you, how are you going to share profits?  Are you willing to do it alone if they decide they’ve had enough?  Would you have to close the business, or could you afford to buy their share out? Do you just want to do it alone?  If you do, do you have the time, money and energy to commit to this, or will any day job interfere?

8.    Invest what you can afford to lose.   There’s the old saying, Nothing Ventured, Nothing Gained.  Sure, there’s always the “He risked everything, including the shirt on his back, and now he’s a millionaire” stories- but like the kid at the playground hoping to make it to the NBA, there’s a certain amount of luck and good fortune, as well as raw talent wrapped up in that success story.  See #1 again- you need to have not just an interest, but a talent at this “thing”, and don’t risk the farm unless you can afford- emotionally, financially, everything- to make this thing a success- to believe in yourself that much.

And here’s another hint-  if  you ask five friends and then five acquaintances what they think about the idea, and you get any sense of doubt or skepticism, consider that carefully before jumping off that bridge.  (Call it market research – but it is testing an idea ahead of time- and this reaction from the people who love you most and want to see you succeed is a good, but biased thermometer- the general public will inevitably be much more harsh in their evaluation.)

The basic advice here is not to be afraid to ask yourself the hard questions, the kill-joy questions when it involves business and money.  Go in with open eyes.  Know what you’re looking at, and if it all looks great and worth and risk- Go for it with a full and joyous heart, knowing you have what it takes inside to make something work on the outside.

It’s one thing to feel like a failure at a hobby, it’s another thing to fail professionally.  It’s a heck of a lot more personal, and there’s a lot more riding on a business venture.  Hopes, dreams and expectations.

In a hobby, if I knit a crap sweater for my kid, he’s still got to wear it every once in a while because I gave birth to him, and I can make a better one  (hopefully) next time.  In business, if your product or business service or store stinks, people won’t come back, think of you first when they have a need, and you only have one chance to make a good first impression.  You need to try to be the Purple Cow, as Seth Godin says, and know how to be remarkable.

If you are only looking for a diversion, or for good enough, what kind of investment are you willing to make in mediocrity?