Starting a small business is no small feat. It demands resilience, dedication, and a whole lot of effort if you aim to create a profitable venture that can withstand the test of time. The Bureau of Labor and Statistics (BLS) reports that approximately 20% of new businesses fail during the first two years of opening, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.
In the United States, there are currently 31.7 million small businesses, constituting a staggering 99.9% of all businesses across the nation. Small businesses are the backbone of the American economy, and for good reason. If you possess a brilliant business idea and harbor ambitions of venturing into entrepreneurship, it’s essential to meticulously evaluate the pros and cons of small business owners before diving in headfirst.
Let’s delve into the pros and cons of small business owners to help aspiring entrepreneurs make informed decisions about this challenging yet potentially rewarding journey.
Pros of Being a Small Business Owner
While being a small business owner is undeniably challenging, it’s equally one of the most fulfilling roles you can undertake. The advantages of small business ownership are numerous and frequently surpass the drawbacks.
1. Community impact
As a small business owner, your potential to create a significant impact on yourself, your family, your friends, and your local community is often amplified. This influence extends to various aspects, from sponsoring community events to contributing to the local economy by channeling a portion of your revenue back into the community.
Creating an impact on people’s lives and careers can serve as a powerful motivator. Remember that building a business provides a platform to make these positive changes a reality.
2. Have More Independence
One of the significant advantages of being self-employed is the increased control and independence it offers over various aspects of your career and daily life. As a self-employed individual, you have the liberty to make choices on matters like holiday schedules, daily work hours, and the projects you accept.
For instance, if you decide to establish your IT business, you can select projects that align with your interests, allowing you to work on what you’re most passionate about. This autonomy and flexibility are highly attractive to many individuals, as they no longer need to answer to superiors or rely on others’ decisions.
3. Make More Money
One major incentive for pursuing business ownership is the potential for significantly higher financial rewards. Successful business owners have the opportunity to earn more income in return for the risks they undertake.
For instance, consider a tax preparer who is earning $15 per hour while realizing that the firm charges several hundred dollars for the service he provides. When an employee believes that their skills and value exceed the compensation they receive, the idea of starting their own business becomes increasingly appealing.
As a small business owner, you are responsible for your own decisions and answer to yourself. You have the freedom to determine your own compensation, choose the type of work that aligns with your preferences, decide with whom you want to collaborate, establish staff salaries, and make other critical business decisions.
This degree of independence can foster increased self-confidence, both in your abilities and in the success of your business.
5. Enjoy Equity
This is another compelling reason why individuals opt for self-employment. As a business owner, you have equity, which represents a valuable asset that you can develop and potentially pass down to future generations.
You also have the option to sell your business, using the proceeds to establish a new venture or even to facilitate early retirement. In this way, having equity also signifies a smart approach to securing your future.
6. Enjoy Tax Benefits
Business owners may benefit from various tax deductions and expense claims that individuals in traditional self-employment roles might not enjoy. This is because owning a business allows for certain expenses to be tax-deductible, which can significantly reduce the taxable income of the business.
7. Develop Your Knowledge
Embracing self-employment offers a unique opportunity for continuous learning and rapid career growth. It propels individuals to expand their knowledge and expertise in ways they might not have considered in traditional employment.
Self-employed individuals are driven to gain in-depth knowledge of their industry. They stay updated with the latest trends, technologies, and developments, making them experts in their field. This comprehensive understanding can lead to better decision-making and innovation.
Cons of Being a Small Business Owner
Owning a small business can indeed be a rewarding venture, but it’s not without its share of challenges. To embark on this entrepreneurial journey fully prepared, it’s essential to recognize the common obstacles you might encounter. This awareness will help you assess whether the path of small business ownership aligns with your goals and equip you with the resilience needed to surmount these challenges when they emerge.
1. Income instability
As a small business owner, it’s important to acknowledge the possibility of encountering income instability. This challenge can be particularly pronounced during the early stages of your entrepreneurial journey when startups often struggle to gain substantial attention and revenue compared to well-established enterprises.
Since the income of small business owners is directly linked to the revenue they generate, fluctuations in income can be a common occurrence.
2. Financial risk
Owning a small business comes with a certain degree of financial risk, and there’s a chance you might experience financial losses in this role. Frequently, entrepreneurs take out business loans to initiate their small businesses, putting them in debt to a lender.
This financial obligation can remain a risk until the loan is fully paid off, all while you work to generate revenue to cover your costs and turn a profit.
3. Riskier Than Being Employed
As a business owner, you invest your own capital, make all decisions, and face unforeseeable challenges. This risk may result in using up your savings, insufficient retirement savings initially, immediate debts, and the ongoing costs of personal and business expenses. It’s crucial to consider these factors carefully before embarking on an entrepreneurial journey.
4. More Uncertainty
Running a business comes with greater uncertainty compared to full-time employment. It lacks the guarantee of consistently finding new opportunities or having products accepted by the target market, which can result in financial challenges.
However, it’s worth noting that even traditional employment doesn’t offer absolute job security, as circumstances can change unexpectedly. If your aspiration is to establish and expand your own venture, don’t allow this uncertainty to deter you from pursuing your goals.
5. Possible lack of guidance
Small business owners often lack a mentor to provide guidance in their business and financial pursuits. This can be challenging, as it leads to uncertainty when making crucial business decisions and crafting effective strategic plans. To address this, it’s beneficial to seek assistance from mentors or business consultants, who can offer valuable insights into business choices and their potential impact.
6. Longer Work Hours
Being the sole manager and operator of your business, it’s common to have extended workdays, including weekends. However, as you gain more experience and expand your staff, you can gradually reduce your work hours and delegate some responsibilities to others.
7. Do Things You Don’t Like
As a business owner, you may encounter tasks and decisions that you find challenging or even dislike. This encompasses not only taking on work you may not be passionate about in the early stages to establish your reputation and grow your business but also making tough decisions crucial for guiding your venture in the right direction.
Becoming a small business owner is a significant decision with its own set of rewards and challenges. While the potential for financial success and personal growth is appealing, entrepreneurs must also navigate income instability, financial risks, and long work hours. It’s crucial for aspiring business owners to weigh these pros and cons carefully and be prepared for the journey ahead.
Ultimately, successful small business owners find ways to overcome challenges and build enterprises that make a positive impact on their communities and their lives.