Maybe you've always dreamed of having your own business and being your own boss. But, is that really a good idea? Is having your own small business as rewarding and liberating as everyone says it is? And are you willing to make the sacrifices you have to make to succeed?
There’s no question that having your own business is a pathway to financial independence and the freedom to run a business as you want. However, starting a new business has a formidable number of disadvantages.
Let's take a look at the advantages and disadvantages of starting a new business.
Advantages of Starting a New Business
Have more freedom: You no longer have to answer to someone else. You work the hours you want, and you make all the decisions without having to consult anyone else. You get to decide what type of business you want, make your own lifestyle choices and set your own schedule. If you want to set aside time during the week to coach your kid’s soccer team, you can do that.
Unlimited income: The owner's income from a small business is one of the best ways for a person to make money far in excess of working for a wage. You have the opportunity to build your business to achieve whatever financial goals you want. According to a report published by CNBC, almost 68 percent of the world's richest people created their wealth themselves. They didn't do it working for someone else. With your own business, there's no financial limit. The only limit is whatever you want it to be.
Establish your own brand: Starting from scratch gives you the opportunity to create a business in the image you want. You can use your own talents and creativity in ways that suit your personality. You're creating a personal brand that is a reflection of your morals, ethics and beliefs.
Create a unique culture: When you start off with no employees, you're free to hire the type of people you want to represent your company. You can create a unique company culture that conforms to the image that you think a business should look like.
Follow your passion: Suppose you have a job in corporate marketing working for a large corporation, commuting back and forth every day on the train to the downtown business district. But in the back of your mind, you'd be happier growing plants and flowers in the nursery, nurturing seeds with water and fertilizer and watching them grow into nature's works of art. That would be pursuing your passion by starting a new business.
Taxes advantages: Tax laws are structured to encourage the development of small businesses by reducing the tax liabilities of the owners. Nearly all business expenses can be deducted to reduce taxable income. Certain business forms, such as limited partnerships and Sub S corporations, pass business losses to investors that can be offset against their other income.
Control your destiny: When you have a job and a recession is looming, you don't have control of your job. You could be laid off at any moment. On the other hand, if you have started your own business, you can take steps to weather the economic storm. You could cut expenses or look for ways to find new customers or expand into different product markets. Whatever your decisions, you have options with your own business that you wouldn't have if you had a job working for someone else.
Leave a legacy: Your kids can't inherit your corporate job. However, if you start a business, you have the opportunity to leave them a prosperous enterprise. Even if they're not interested in taking over the business, they could either sell the business or hire a manager to run it for them. Either way, they’ll be able to enjoy the financial benefits of your efforts to create a profitable business.
Disadvantages of Starting a New Business
Starting a new business is risky: When you start a new business, you're taking a chance. You don't know if you're going to succeed or fail. You don't know if your business model will work or not. And you don't know if you'll have enough capital to survive. There are no guarantees when you start a new business.
Requires careful preparation: Starting a new business means conducting market research, developing products, preparing a business plan, making financial projections and securing enough capital to start the business and survive until the cash flow starts to come in. You think you've covered all the bases, but what have you missed?
Must assume responsibility: The success or failure of your new venture rests on your shoulders. It's your job to think through every decision to find the best solution.
Suppliers reluctant to extend credit: Suppliers are hesitant to extend credit to a business that has no history. Without supplier credit, you may have to pay for your purchases upfront. At the same time, you may be selling to your customers and giving them terms of 30, 60 days or 90 days. This time differential will create a cash flow deficit that must somehow be funded.
Takes a lot of time: When you work for someone else, you probably have fixed working hours, like 8 to 5. When you have your own business, especially a new one, you work as many hours as it takes. That could be 40 hours per week or as many as 80 or 90 hours, with nights and weekends. The responsibility of creating and building the business is yours, and the commitment in time can be substantial.
Possibility of failure: According to the Small Business Administration, only about one-half of new businesses survive for five years and only one-third are still in existence after 10 years.
Read More: How to Write a Business Plan for Grants
After considering the advantages and disadvantages of starting a new business, you have to decide if that's a good idea for you. While the opportunities for substantial financial reward and the ability to create your own brand new business are attractive, are you willing to put in the time and effort that it takes to succeed in a startup business?
Starting a new business takes considerable commitment. You must be willing to make the effort to prevail in the face of hurdles that will come.
James Woodruff has been a management consultant to more than 1,000 small businesses. As a senior management consultant and owner, he used his technical expertise to conduct an analysis of a company's operational, financial and business management issues. James has been writing business and finance related topics for work.chron, bizfluent.com, smallbusiness.chron.com and e-commerce websites since 2007. He graduated from Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University.