In the 1941 movie Citizen Kane, actor Orson Welles, in the title role, buys a newspaper operation and applies talent and ruthless ambition to make it a towering success and the cornerstone of his eventual publishing empire. Likewise, in 1945’s Mildred Pierce, Joan Crawford, as the waitress and pie-baker heroine, risks everything to open her own restaurant and through unremitting hard work drives it to phenomenal profitability.

If you think the only way to start a business these days is by mustering a similar risk-defying force of your own, think again. While many of the 20,000 small businesses that open weekly in the U.S. are launched with entrepreneurial daring like Orson and Joan’s, increasing numbers have a more relaxed beginning. Among these are home-based endeavors, some as simple as lawnmower-sharpening operations. Consultantships, many supplying services the consultants formerly offered as corporate employees. Spare-time businesses and seasonal ones. Mail-order ventures. Internet-related companies. While some of these enterprises require considerable startup capital, others require less than $1,000.

Indeed, unprecedented numbers of Americans are going into business for themselves. Why? One reason is downsizing, contends Paul Solman, business correspondent for public television’s "The News Hour with Jim Lehrer." "Companies found they couldn’t be competitive carrying peak-load levels of staffing, and downsizing creates a cost-effective opportunity for more people to come in as freelancers. Besides," he adds, "I see evidence all around me that more and more people simply want to be entrepreneurs."

Not all opinions are so upbeat, however. According to the U.S. Small Business Administration (SBA), about 15 percent of new ventures—approximately one out of seven—will fail; another 65 percent will close because of merger, acquisition, or owners’ decisions to invest their money elsewhere. The SBA targets the cause of failure as poor business practices and entrepreneurs "not cut out for self-employment," while Dun & Bradstreet estimates that 90 percent of failures stem from lack of managerial experience and knowledge.

Chicago bankruptcy attorney Synde Keywell, who has watched such failures from ringside, offers a more detailed picture. "When businesses fail after 18 months to five years," she explains, "the reasons generally are inadequate capital, a change in the market or management, or a catastrophic event like a bad mistake with liability issues that insurance couldn’t cover. Failure after five years probably means the next generation didn’t have the talent or interest to carry on the enterprise, or the product has been replaced by technology—consider manual typewriters, for example.

"But most companies fail within the first 18 months," continues Keywell. "And the main reason is that they ran out of capital, didn’t find their market niche, or didn’t really know what they were doing."

Clearly, you have to know what you’re doing in order to survive. The following advice can help you beat the odds.

You must have a "passion for the work," counsels Terri Lonier in Working Solo, and choose a business that interests you, but that’s also likely to generate money and succeed. Which means you can approach the challenge of finding a niche from either end. Identify your talents and interests and match them to a business, as many business writers recommend. Or search for gaps and unmet needs in the marketplace that ignite your interest. For example, in a nation with 45 million schoolchildren, 35 million working women, and 29 million seniors, advises Will Davis in Start Your Own Business for $1,000 or Less, enterprises like daycare and shopping services—if they inspire you—are naturals.

Above all, choose work that fits your temperament. You may love books, for instance, and foresee growth in retail bookselling but be miserable faced with the day-to-day realities of running a bookstore.

Anyone who wants to start a business must be able to cope with long hours, hard work and high levels of stress. Yet these aren’t the only criteria: appetite for risk, claims Hattie Bryant in Beating the Odds, best separates owner from employee personalities. To assess yourself, she suggests, prioritize "challenge," "advancement," "money" and "security." If your priorities are "challenge" and "advancement," you’re an owner; if they’re "money" and "security," you’re better suited to be an employee.

And don’t stop there. Owners vary, Bryant notes, by the types of operations they should run. If you’re capable of starting a business from scratch, you must have "an idea on fire in your head," a drive to compete and win, and a zest for breaking rules, planning every detail, and living on the edge.

Thinking of buying an existing firm? You should be "drawn like a magnet" to it, filled with ideas for improving the operation, and happy adjusting existing systems to make them better.

If you’re the franchise type, you enjoy being part of a large, recognized organization and thrive on having established procedures to follow and ready resources for training and support.

Owners of home-based businesses, according to Paul and Sarah Edwards in Finding Your Perfect Work, display their own striking traits: high motivation and self-discipline, persistence, organizational skills, and a willingness to work an average 61-hour week, often alone.

Take the time to build a sound foundation for your business. Conduct market research, whether on your own or with professionals, to ensure your concept is viable. Assess the competition and competitive fields. Verify that the market niche you’ve selected is neither ill timed nor overly saturated.

Then begin, suggests Marc Allen in Visionary Business, to "plan your work and work your plan"—the plan being your business plan. A basic business plan describes your company’s background, rationale, mission and product or service concept. It analyzes the competition and discusses your organization, staffing, operations, marketing strategies, and product development plans over the next one, two and five years. Finally, it sets forth your financial picture, including your sources and uses of cash, balance sheet, break-even analysis, and three-year income and cash flow projections.

In essence, a business plan is your company’s roadmap; preparing it and reviewing it regularly to monitor progress toward your goals are, experts say, imperative to success.

Still, market analysis and a business plan are only part of the groundwork.

If you’re considering starting your own business, writes Steven Brandt in Entrepreneuring: The Ten Commandments, you’ll need to define your product and customer, settle upon two or three objectives, establish a team of directors and team of proven managers, if appropriate, and secure your financing aggressively and early. Adds Marc Allen: develop an employee handbook and plan your employee benefits, profit-sharing and stock options.

If you’re considering buying an existing firm, work only through a qualified business broker, recommends Robert F. Klueger, author of Buying and Selling a Business, and have your lawyer promptly send the seller a letter of intent, which binds you to confidentiality so you can press for answers to "embarrassing" questions and probe deeply into a company’s finances. Understand why the seller is selling, and determine the changes you’ll need to make in the operation. Never show eagerness to buy. Never make the opening bid.

If you’re considering a franchise, learn everything you can about the franchise product, the market for that product, and the franchisor, advise Constance Jones and The Philip Lief Group in The 220 Best Franchises to Buy. Consider the costs of the license fee (usually $10,000-$113,000), setup, training and startup operations—plus the percent of gross profits you must pay the franchisor. Clarify the extent of the franchisor’s training and support, which may include finding and equipping your business site. Ascertain your legal rights and resale options.

If you’re considering self-employment, be aware that it opens a floodgate of matters for which you become responsible: health insurance, retirement plans, various legal requirements, marketing, taxes, payroll, recordkeeping, cash management and more.

One common strategy for reducing overhead is to work from your home. Another strategy for reducing risk is to start modestly with just an evening, weekend or seasonal business—possibly while you continue to hold a fulltime job. Or combine strategies and work alone in low-risk cyberspace, creating such Internet ventures as real estate search companies or direct-mail boutiques.

What’s the smartest thing you can do when starting your business? "Engage a professional accountant," emphasizes John Freeman, professor at the Haas School of Business, University of California, Berkeley. "Most startups go wrong," Freeman explains, "by thinking they can run their operation out of their hip pocket, and profit is what’s left in their wallet at the end of the day. So hire an accountant, even though you’re cash-starved, to help you start with recordkeeping, develop your business plan, and avoid most of the egregious problems that hound companies after they pick up steam."

Yet accountants are only the start, according to Laurie B. Zuckerman, author of On Your Own: A Woman’s Guide to Building a Business, who believes companies should have their "big four" support people: an accountant, attorney, insurance advisor and banker. You need legal help, she writes, to ensure you’re covering all the legal bases. You need insurance advice to make certain you’re adequately covered against both casualty and liability.

Finally, you need financial help to overcome the money problems that commonly frustrate businesses. The first hurdle is startup financing, often a combination of debt financing—money you borrow, typically through a personal credit card or personal loan—and equity financing, consisting of funds that you, family, friends and others invest in your fledgling operation.

Given this range of sources, why are so many new businesses undercapitalized? One reason is over-optimism. "Everything takes twice as long and costs twice as much as you expect," warns Marc Allen, quoting an old adage. He recommends building doubled time and expenses into all financial projections, then adding 15 percent for contingencies. Furthermore, new owners often don’t realize how long it may take for businesses to catch on—including how many calls it takes (normally five) to make a sale, and how much advertising, public relations and networking are entailed to make yourself known. Accordingly, you need the resources, experts say, to support your business and yourself for at least a year—preferably two.

The second hurdle is ongoing: money management. Control your financial allocations, advises Stephen C. Harper in The McGraw-Hill Guide to Starting Your Own Business, by prioritizing your needs by preference, financial worthiness and risk. Start lean, suggests Will Davis: control initial expenses, avoid or control inventory, bargain-shop for equipment and buy only as the need arises, and reinvest a fair amount of profits in your enterprise rather than withdrawing them all for personal use. Furthermore, start your business with cash management mechanisms already in place, urges John Freeman, who considers software packages for cash flow and strategic analysis—QuickBooks Pro!, for example—absolute essentials.

To summarize, starting a business can be a highly complex, highly capitalized, highly risky undertaking. But it needn’t be. If you choose to start small, the opportunities available today to do the work you want, while capitalizing at a level you can afford and assuming a degree of risk you can control, have never been more bountiful.

On the subject of financing a new business, Dominic Venturo, vice president and credit products manager at Bank of America, urges caution. "Typically," he explains, "small-business startups plan to use consumer-type credit they already have available, like home equity loans, credit cards or an equity line of credit. But they should be very careful about the amount of debt they take on—and understand what the costs are, when they’re likely to come due, and how the loan will be repaid."

There are, of course, alternatives to consumer-type credit. SBA loans. Micro-loans established by cities or counties for economic development. Financing by vendors, often taking the form of a lease. And bank financing, which is now becoming available earlier in the business cycle of a company.

"Banks have gotten better at measuring risk," Venturo points out. "They may lend up to $50,000 to businesses with good credit that have been established only two years, even if those businesses haven’t made money. Companies sometimes get loans even sooner if they have a good credit history and need less than $25,000."

Yet for small businesses, often a more significant part of the financial picture is money management—about which Venturo offers five key pieces of advice.

1. Plan thoroughly. "Have a clearly set-out roadmap," says Venturo, "showing where you’re going and how you’ll get there." Good recordkeeping skills in-house or from outside services are a must.

2. Measure your progress. "Many of the troubled companies we see didn’t know they were in trouble," Venturo comments. "They had no regular benchmarks to meet, so no way to know something was wrong."

3. Take action. If your measurements indicate you’re falling behind, don’t delay in taking remedial steps.

4. Evaluate the challenge realistically. "I can’t tell you how many entrepreneurs have told me: ’If only I’d known how much time and money it takes!’" remarks Venturo. "Just figuring out the governmental considerations—licenses, taxes, payroll tax, OSHA—and insurance could be a fulltime job." The moral: give small-business ownership a hard, realistic look before you leap.

5. Get help. "Don’t try to do it all by yourself," Venturo cautions. "Get the professional assistance you need, as well as support from family, friends, spouse and others."

"One of your first legal considerations," prefaces St. Louis, Missouri attorney Jean Lamfers, "is to decide whether to form a legal business entity, which will protect your personal assets in case you’re sued. If your venture isn’t risky or you have insurance to cover your liability, you probably don’t need to form one. Otherwise," she continues, "determine whether to operate as a sole proprietor, a partnership—which can be just a verbal agreement between two people—or a more complex entity, like a limited liability company or C-corporation."

Next comes a laundry list of other considerations.

Naming. "You need a distinctive name to help establish your market niche, but it can’t already be in use," Lamfers cautions. "Register with your state or county-jurisdictions vary by state—to ensure you’re not copying someone else’s name and that nobody in the future will copy yours." If you’ll do business nationally, also trademark your name by registering it with the U.S. Patent & Trademark Office.

Local Laws. Contact your state, county and city to learn their business licensing and permit regulations, and get in touch with the appropriate taxing authorities. Find out if any city zoning restrictions affect your operation.

Taxes. Numerous taxes may apply to your business, including retail tax, income tax, sales tax, unemployment tax and FICA. For all of these, you’ll need to get an employer tax number from the IRS. This "can take awhile," Lamfers advises, "so plan ahead."

Insurance. When discussing comprehensive general liability insurance with your insurance advisor, suggests Lamfers, also ask about errors and omissions insurance, which protects you if your failure to perform certain duties causes liability to someone else. Also on the insurance checklist: worker’s compensation and unemployment.

Contracts. You may want employees and independent contractors to sign noncompetition agreements, valid for a specified period of time after your relationship with them ends, as well as nondisclosure statements agreeing to keep your trade secrets confidential. You should also consider written agreements with key suppliers specifying how you’ll be compensated if they fail to perform.

Getting set up legally doesn’t come cheap, cautions Lamfers. There are registration fees to the state—plus annual renewals—and lawyers’ fees. But you can reduce the latter by doing some of the preparation work yourself: collecting information on licenses and permits, filling out applications before you meet with your lawyer, and streamlining consultation sessions by preparing an agenda.

"Like a lot of other entrepreneurs, I started in an exploratory way, not altogether sure I wanted to be in the business, and would have wasted less time if I’d been clearer about my goals. I also allowed the shoestring limitations I started with to drag out too long, and vacillated over good ideas I should have borrowed money or reconfigured my budget to pursue."

Bob Katz, president, Quest Agency,
Lexington, Massachusetts
Years in business: 16

"A business education and a background in accounting would have been very helpful in managing the many details of growing my business. Although I had an accountant to calculate the numbers, I needed to learn the basics of interpreting financial projections, understanding capital expenditures, and how to approach banks for expansion loans."

Lillian Vernon, founder and CEO,
Lillian Vernon Corporation,
New Rochelle, New York
Years in business: 47

"I managed this company for the owner before we bought it, and I guess we jumped in somewhat blindly. I had no idea about taxes; luckily, we found someone who could help us. And I didn’t realize how expensive advertising is, when you’re trying to get your name out, and how important it is to find someone who knows about marketing to help you."

Kathy Gallegos, president,
Party Depot, Denver, Colorado
Years in business: 4

"The most critical thing is to be properly capitalized and take care of accounting right from the start. I’ve seen people with a whole year of paperwork built up or who filed the wrong amount of sales tax or didn’t know you’ve got to file sales tax after your first three months in business. The fact is, you have to spend a huge chunk of time pushing paper and controlling every penny in order to make money."

Reggie Young,
restaurant designer and owner,
Washington Depot, Connecticut
Years in business: 20

"We hired initially for expedience—friends or relatives of friends, people we could get more cheaply and train. Today I would hire for excellence and find the absolutely best person for the spot, even if it meant a smaller staff. You can operate better and grow faster if you have the best people."

Carole Lewis Anderson, principal,
Suburban Capital Markets, Inc.,
Rockville, Maryland
Years in business: 3

"I wish I’d carved out a space for myself at home, as opposed to the kitchen, which is a family gathering place. I also should have charged more from the start and paid for prep help instead of doing it all myself, which is just too exhausting."

Callie White, caterer,
Mount Pleasant, South Carolina
Years in business: 6

"Nothing in manufacturing is simple or without danger. Every little change or enhancement has large ramifications and can create problems down the road that far outweigh the benefits you expected to achieve. Manufacturing is a very complex business and requires 24-hour attention. You have to be fully committed to the challenge."

Tom Leone, president,
CMI International,
Elk Grove Village, Illinois
Years in business: 12

"I didn’t realize that I’d have to diversify initially, that I’d have to find ways of doing things even when they were outside my expertise, or that it would take 10 years until I had the size and reputation for people to take me seriously. Being in business for yourself tests every emotion, and it’s a revelation how many emotions you have, both negative and positive."

Deborah S. Jones, owner,
Golden State Specialty Plastics,
Sacramento, California
Years in business: 10

"I’ve learned not to worry so much, not to panic thinking every job I finish will be my last. In the beginning I took on more than I should have, but now I sometimes turn down work, which I’ve learned doesn’t burn your bridges with the person who offered you the job, but can actually make you more desirable."

Jay Martel,
comedy writer and actor,
New York, New York
Years in business: 16

"Simply doing good work is not sufficient if you want to be busy and successful. You’ve also got to do a lot of care and feeding of clients—remaining constantly in touch with them and keeping lines of communication open. You can never service your clients too much, and I wish I’d known that from the beginning."

Hans Tronnes, hospital consultant,
Hans Tronnes Associates,
Minneapolis, Minnesota
Years in business: 11

"You’ve got to be sure of your market niche before you start, and know there’s a market for what you offer and that it’s large enough for what you want to accomplish. As an owner, you have to stay involved in daily operations; you can’t just buy a business and hire people to run it."

Hayden and Don Quattlebaum,
wine importers,
Myrtle Beach, South Carolina
Years in business: 6

"I didn’t understand that you’ve got to keep a real eye on cash flow to know constantly where your money’s coming from. If you spend money you don’t have, and you run out, the party’s over. It’s also important to know there’s always a way to make something work; the determination to find that way has kept my business going time after time."

Rick Barham, president,
Market Rate Insights, Inc.,
Mill Valley, California
Years in business: 12

Excerpted with permission from Small Business Success, Volume XI, produced by Pacific Bell Directory in partnership with the U.S. Small Business Administration.