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Ask Dave

The Business-Starting Baby Step

Patrick has a mind to start a small business. At what point should he begin?

QUESTION: Patrick in Nebraska wants to know when to start a business while walking through the Baby Steps. Dave says it depends on how much is initially being invested in the business.

Dave's ANSWER: It can fall anywhere, depending on what you're going to spend. The more you're going to spend, the later in the Baby Steps.

If you're going to start a new business tomorrow and it will cost you $50 and you can make $500, you can start it on Baby Step 1. But if you're going to put $5,000 in it, then you have a different situation. If you are going to put $50,000 in it, it's a whole different thing.

You say you want to start up your own pizza place, and that's an expensive item. That will be well after Baby Step 3, where you are out of debt and have an emergency fund in place. Then a question I ask myself is if there is a way to start smaller. I don't know what that is, unless you did pizzas in your basement and delivered only, and you didn't have a retail outlet. That's assuming the health department and all the others would allow you to do that.

Is there a way to be a pizza caterer before you go into the full-on investment of a sit-down place? Here's the problem: You'll have several elements in that business. Two of them are the quality of the pizza and the location. You can have great pizza and a lousy location and go out of business. You can have a great location and lousy pizza and go out of business.

Those are just two of the variables, and I don't want location to put you out of business before you start just because you didn't know what you were doing. I want you to find a way to wade into this, if there is a way to start smaller and work your way up.