Reading: Advantages and Disadvantages of Small-Business Ownership | Introduction to Business

Owning a small business has its advantages and disadvantages. Each entrepreneur must weigh the pros and the cons carefully and decide whether or not the risk is worth the reward.

In addition, small businesses have certain advantages over large businesses. Flexibility, generally lean staffing, and the ability to develop close relationships with customers are among the key benefits of small businesses. The digital communication revolution has significantly lowered the cost of reaching customers, and this has been a boon to small startups and big businesses alike.

As the little boy said when he got off his first roller-coaster ride, “I like the ups but not the downs!” Here are some of the downsides to owning a small business:

Time commitment. When someone opens a small business, it’s likely, at least in the beginning, that they will have few employees. This leaves all of the duties and responsibilities to the owner. Small-business owners report working more than eighty hours a week handling everything from purchasing to banking to advertising. This time commitment can place a strain on family and friends and add to the stress of launching a new business venture.

Risk. Even if the business has been structured to minimize the risk and liability to the owner, risk can’t be completely eliminated. For instance, if an individual leaves a secure job to follow an entrepreneurial dream and the business fails, this financial setback can be hard to overcome. Beyond financial risk, entrepreneurs need to consider the risk from product liability, employee disagreements, and regulatory requirements

Uncertainty. Even though the business may be successful at the start, external factors such as downturns in the economy, new competitors entering the marketplace, or shifts in consumer demand may stall the businesses growth. Even entrepreneurs who go through a comprehensive planning process will never be able to anticipate all of the potential changes in the business environment.

Financial commitment. Even the smallest of business ventures requires a certain amount of capital to start. For many people starting small businesses, their initial source of funding is personal savings, investments, or retirement funds. Committing these types of funds to a business venture makes them unavailable for personal or family needs. In most cases where a small business receives start-up funding through a loan, the entrepreneur must secure the loan by pledging personal assets, such as a home. Risking the equity in one’s home is a financial commitment not all entrepreneurs are willing to make.

In spite of the potential disadvantages, most small-business owners are pleased with their decision to start a business. A survey conducted by the Wall Street Journal and Cicco and Associates Inc. indicates that small-business owners and top-level corporate executives agree overwhelmingly that small-business owners “are more satisfied with their work than their corporate executive counterparts.”