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Understanding the Requirements of Business Ownership

Filed under Startup. Fact checked on May 24, 2012.

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Small business ownership isn't just another job -- the responsibilities have advantages and disadvantages, requiring you to perform many different roles using many different skills. Are you ready?

Generally, people who start their own businesses can be grouped into two broad categories:

  • The first group consists of people who know exactly what they want to do and are merely looking for the opportunity or resources to do it. Usually, these people have already developed many of the skills necessary to succeed in their chosen field. They are also likely to be familiar with industry customs and practices, which can help during the startup phase of a new business.
  • The second group consists of people who want to start their own business, but don't have any real definite ideas about what they'd like to do. While these people have developed skills in the course of their employment or education, they may not be interested in opening a business in the same field of endeavor.

For those who know what they want to do, the task is a bit easier. There's no need to research business ideas and opportunities to decide which might be suitable. Instead, these folks can jump right in and assess their chances for success in the type of business they've selected.

Those who merely want out of the traditional corporate world have an extra step: choosing the right small business for you.

Either way, you'll need hard work, skill, perseverance, and a little luck to be successful. We can't do much about the luck, but we'll try to give you a sense of what you can expect from a small business, as well as what a small business will expect from you.

Responsibilities of Business Ownership

In the U.S., it's estimated that less than 40 percent of all startups are still in business after five years. This doesn't mean that over 60 percent have failed, since some owners will sell or close their successful businesses. Nevertheless, the better you prepare yourself and understand the challenges ahead of you, the more likely it is that your business will succeed.

There are two common reasons that startups fail:

  • The business is poorly managed because the owner lacks the necessary skills.
  • The owner underestimates how much money it will take to start the business (undercapitalization).

Let's look specifically at the first cause and try to help you determine if you have the necessary skills, or if you have the opportunity to acquire those skills.

Advantages and Disadvantages of Small Business Ownership

Owning a small business is not just another job. It's a totally different lifestyle. You have to ask yourself whether you're ready for a complete commitment to the success of your business. Just as importantly, you have to ask your partner, if you're in a relationship, whether he or she is committed to support your efforts.

As a small business owner, you're going to have less time for your personal life and you'll probably be using much of what you own as collateral to raise money for the business. If you are willing to make those sacrifices, then let's move on to some of the advantages and disadvantages of owning your own business.

Advantages of Business Ownership:

  • You have the chance to make a lot more money than you can make working for someone else.
  • You'll be your own boss and make the decisions that are crucial to your business's success or failure.
  • You may be the boss of other people.
  • You'll have job security: no one can fire you.
  • You'll have the chance to put your ideas into practice.
  • You may participate in every aspect of running a business.
  • You'll learn more about every aspect of a business and gain experience in a variety of disciplines.
  • You'll have the chance to work directly with your customers.
  • You'll be able to help the local economy by doing things such as hiring other people to work for you.
  • You'll have the personal satisfaction of creating and running a successful business.
  • You'll be able to work in a field or area that you really enjoy.
  • You'll have the chance to build real retirement value (for example, by selling the business when you retire).
  • You'll have the chance to put down roots in a community and to provide a sense of belonging and stability for your family.

Disadvantages of Business Ownership:

  • You may have to take a large financial risk.
  • You will probably have to work long hours and may have fewer opportunities to take vacations.
  • You may end up spending a lot of your time attending to the details of running a business and less time on those things you really enjoy.
  • You may find that your income is not steady and that there are times when you don't have much income coming in at all.
  • You may have to undertake tasks you find unpleasant, such as firing someone or refusing to hire a friend or relative.
  • You may have to learn many new disciplines, such as filing, bookkeeping, inventory control, production planning, advertising and promotion, market research, and general management.

Special considerations for a home-based business. This arrangement has unique circumstances that can simplify or complicate the situation.

The advantages include:

  • Your startup costs will be lower because there will be no external facility issues.
  • Your operating costs will be lower because you are not renting space or paying utilities.
  • Your commute will be shorter.
  • If your location is unimportant to your business, you can theoretically live anywhere and still operate your business.
  • You may have more flexibility in your schedule if your business can be conducted at your convenience or outside "normal" weekday business hours.

The disadvantages include:

  • You are more vulnerable to interruptions from family members, neighbors, and friends.
  • You may have trouble attracting qualified employees.
  • You may be less accessible to suppliers.
  • You may have an image problem, although with the growing popularity of home businesses, that's less common.
  • You may run out of space at home if your business grows.

If you're currently employed, you have first-hand knowledge of what it's like to be an employee. If you think going into business for yourself will mostly mean doing the same thing, but for yourself, you're in for a surprise. Small business owners are responsible for the entire business, which involves a lot more than just providing goods or services. It's likely that all the administrative and managerial duties currently performed by your employer will fall on you.

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