What are the risks of starting my own business?

Although you can reap many benefits by starting your own business, there are definitely some risks. The most common include:

• Losing money. You're going to need money to get your small business started. Whether you raid your savings account, hit up friends and relatives, or borrow from a bank, there's a very real possibility that your business won't succeed and that you, your friends, or the bank will never see that money again. If your business idea is risky, ask yourself whether you're willing to gamble your retirement, your friendships, and even your good credit on your business idea.
• Personal sacrifice. Business success can come at a high personal cost. Getting your business up and running may consume most of your time and energy, including your precious evenings and weekends. You may not have much time for family or friends or the extra cash to take a second honeymoon with your spouse. Before you quit your job, decide whether you (and your family) are ready to make some of the personal sacrifices necessary for you to create a successful small business.

How can I tell if my business will make money?

Even a good business idea might not be financially workable. To learn how your idea will fare, you should prepare what's called a "break-even analysis." In a break-even analysis, you project income and expense estimates for a year to determine whether, in theory at least, your business will make enough sales revenue to pay its expenses.

A break-even forecast includes the following:

• how much your business will earn over a specified period of time (your projected sales revenue)
• your fixed costs, such as rent and insurance
• your profit after deducting the direct cost of the product or service you provide (your gross profit), and
• the sales revenue you will need just to keep your business running (your "break-even point" or "break-even revenue").

If you find your break-even revenue represents an amount of work your business can handle -- that is, if you can easily bring in more than the amount of sales revenue you'll need to meet your expenses -- then your business stands a good chance of making money.