Key takeaways
- The pros of being a small business owner include financial and emotional rewards as your business succeeds
- The downsides are that you assume personal risk and responsibilities when owning a business
- Business owners need to keep a pulse on the business and be willing to work hard to see the company succeed
Small business ownership can be incredibly rewarding if your business ideas succeed. You get to watch customers enjoy your products or services and have their needs fulfilled. You also see the financial rewards of selling your product or service. But being a small business owner means that you take on the risk that your business might not succeed.
If you have investors, they are counting on your business to turn a profit, as they are usually rewarded with a portion of profits in exchange for their funding. If you get a business loan, you may have signed a personal guarantee, which gives the lender the right to take your personal assets if your business defaults.
You assume the risk and personal responsibilities of owning your own business. The choice is yours whether that risk and potential for success is worth it for you.
The benefits of being a small business owner
As a small business owner, you have control over running your business and what products or services you offer. Some benefits that come along with owning your business are:
Potential for success
You get to create your business from ideation to turning a profit, and the potential for success in a free market economy is great. According to the U.S. Chamber of Commerce, 50 percent of small businesses fail within the first five years. While that number sounds high, it also means that 50 percent of businesses succeed.
When you’re going into business for yourself, you get to create any number of products or services to help your business succeed. And success can come down to putting in the work to market to the right customers and get the word out about your company. When you do succeed, you get a sense of accomplishment for a job well done.
Equity in the business
As a business owner, you get equity in your business, and the amount of equity can determine how much you get paid through dividends or bonuses. If your business has a successful year, you reap the monetary rewards of that success. In the future, you may even be able to use that equity as an asset to get equity financing.
Flexible work schedule
As an owner, you can set your own schedule. In some cases, your customers or meetings will dictate your schedule. But, if your child has a school event coming up, you can take the time off to participate with other parents. If you’re not feeling well, you can take the time off necessary to get better.
Control over what you work on
When you work a 9 to 5 for someone else, you must perform the work you were hired to do. But as a small business owner, if you get a new idea, you have the freedom to work on it and potentially bring a new product or service to market.
You also get to be creative about problem-solving for your business, whereas as an employee, you’ll likely have procedures and policies to follow.
The disadvantages of being a small business owner
Despite the potential that your business will succeed, you’ll likely have to work harder as a small business owner and assume personal risks. The cons to owning a small business include:
Possible long work hours
Many small business owners put in long hours to help their ideas prove fruitful, a phenomenon called sweat equity. According to a New York Enterprise Report cited by SCORE, 33 percent of small business owners work more than 50 hours per week. And 25 percent work more than 60 hours per week.
Stress from responsibilities
The long work hours and decision-making can weigh on you as a business owner. If you have employees, your business needs to be successful to continue paying their wages and offering benefits. You also have to be proactive about the problems that your business runs into to avoid impacting your employees or your everyday life.
According to the American Institute of Stress, 83 percent of workers suffer from work-related stress, and one million Americans miss work each day because of the stress. Over 50 percent of workers aren’t engaged at work because of stress. So, while stress may be amplified as a business owner, work-related stress can shift onto employees, impacting your business further.
Variable income
As your business experiences seasonality, you may see fluctuations in how much you can pay yourself. Determining your salary may be difficult if you are just starting out your business, and you’ll likely need to budget to ensure you can meet your personal and business needs and obligations.
Dealing with legal and business regulations
As a business owner, you will need to comply with laws and regulations surrounding your industry. Those regulations only multiply when you hire employees or open a brick-and-mortar store. You’ll want to research the legal requirements of starting a business in your chosen field.
You may also want to work with an accountant who can ensure that you stay compliant with the taxes your business pays. The accountant can also advise you on the business entity that will best suit your business and can help you find deductions that your business is able to take.
Assuming personal risk for the business
As the business owner, you have final decision-making authority (unless you sell equity in your business to other owners). This means that people are personally counting on you to make good on your promises.
If you need funding and get a business loan, many lenders also require you to sign a personal guarantee. This guarantee means the lender can hold you personally liable to repay the loan. The guarantee essentially voids any legal separation you might have if you formed an LLC or corporation.
Characteristics of a successful business owner
Most business owners start with a great idea, but successful owners know how to see the idea through to get it to market. Here are some characteristics of successful business owners:
- Self-starter. Successful business owners can manage their schedules and know exactly what they should be doing. They don’t need others to tell them what to do in their day to day, and they can perform important tasks with little to no oversight.
- Takes calculated risks. Successful business owners understand the risks they are taking. They may perform research to better understand their audience and the market they’re getting into.
- Receives mentorship from other successful business owners. While business owners don’t need someone looking over their shoulders daily, they can benefit from getting advice from a seasoned business owner. You can find mentors from SCORE or your local Small Business Development Center.
- Pores over the budget and revenue forecasting. A successful business owner keeps a pulse on the business finances and develops accurate and realistic forecasts. From those forecasts, they can set achievable revenue goals. Having accurate revenue forecasts and goals helps the owner make informed decisions.
- Stays up-to-date on business developments. The business owner needs to know what’s happening with their business, the market and economy. They may implement new technology quickly or respond to a shift in the market in real-time.
Bottom line
Being a small business owner can mean seeing the satisfaction of your ideas coming to life and customers using your products or services. But you also assume some risk that your business could fail. Many business owners stave off this risk by working hard, putting in long hours and setting realistic targets to help them succeed.
Frequently asked questions
Being a small business owner can be difficult because the owner has to make many decisions and is responsible for the company’s success. But some small business owners love the freedom, flexibility and creativity of being a small business owner.
A business owner might start a business because they have a business idea and may have observed a gap in the market. They may also want to go into business for themselves because they have expertise in a certain field. Other business owners simply want to own a business because they want the work flexibility and ability to be their own boss.
With half of small businesses failing within five years, small business ownership is risky. Many business owners deem the risk worth it if they reach their goals, which could be a certain amount of revenue or the ability to work for themselves.
