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Open for Business: 5 Tips for Starting a Business in a Recession

Katie Vaughan, owner of Westside Nannies, which has offices in Beverly Hills, Calif., and San Francisco, may seem like she's got money to burn. Her boutique nanny service specializes in placing professional and educated nannies with high-profile and celebrity clients. The company has been featured on TV shows such as "Entertainment Tonight," "Dr. Phil" and "E! News."

Though her company now has a well-known image, she started small and, shortly after starting her business in 2006, she was forced to navigate the company through the rough waters of the recession. A former nanny herself, she said that running a business in a recession has taught her a few hard lessons about what it means to be a savvy business owner.

Use inexpensive forms of marketing. "I asked my friends and social network to spread the word," Vaughan said. "Our first few customers came to us through word of mouth. To this day, about 70 percent of our business is still through word of mouth."

Don’t leave your day job. "Starting a business is hard work and the money doesn’t start coming in the moment you put the sign up on the door," she said. "Don’t jump ship without a raft. Before you leave your current job to run your new business full- time, make sure that it is bringing in enough income to pay your basic expenses with the net profits and that you have at least a three-month emergency fund in place. "

Don’t borrow money. Grow organically. "During the height of the recession, and even now, I have seen so many small businesses close their doors because they took out large loans they are now unable to pay back," Vaughan said. "I started Westside Nannies at the dining table in my apartment, eventually moved into a shoebox-sized office, hired my first two employees, and just recently expanded our office space. Believe me, it's better to have a sustainable business with zero debt than a big office on the best street that's financed to the hilt."

Hire wisely. "There comes a time when, in order to grow, you will need to hire an employee," she said. "When you're at your wit's end working 24/7 and feeling desperate, hiring help is crucial and can make or break your business. Take time to create a thorough job description, recruit extensively, and don't cut corners during the interview process. Make sure the employees you hire are passionate about your vision — see them as your teammates and treat them well."

Make money, then organize. "My dad gave me some great advice, which is pretty much the opposite of what is taught in business school," Vaughan said. "He said, 'Too many people waste time creating extensive business plans , lining up family members as investors, and researching to the nth degree. While it's important to be prepared and know your market, it's more important to see if your idea can actually work in the real world. If you want to own a landscaping company, break out the lawnmower! So before you go off and form your LLC, start working, get some money in the bank, and grow organically. '"