Advantages & Disadvantages of Small Businesses
Out of the millions of companies in the United States, 99.9% are small businesses. Although small businesses make up the overwhelming bulk of businesses, this does not mean they are easy to start or operate.
Entrepreneurial-minded individuals that wish to own and operate a small business should be aware of the advantages and disadvantages that come with small business ownership.
One of the driving forces that leads people to start a small business is the promise of freedom and satisfaction that comes along with it. Being able to take an idea from just a concept to reality is not an easy task, and those who manage to do it receive immense fulfillment from it. Running a small business also gives owners the freedom to choose when – and sometimes where – they work. If they do not want to work at a particular time, they do not have to because there is nobody that they have to answer or report to.
In addition to the fulfillment gained, many small business owners appreciate the financial rewards they can work toward while running their business. Rarely does someone get wealthy by working for someone else; it usually requires ownership to amass wealth. Starting a small business gives people this ownership and in the long-term can put them in a much better financial position.
On the other hand, owning and running a small business includes hours that go beyond the traditional Monday through Friday, 9 a.m. to 5 p.m. It's not unusual to work 12- to 16-hour shifts, seven days a week.
This is mainly because most small businesses are strapped for cash and would prefer not to add another salary to the payroll. These long hours can take a toll on many people. They also mean less flexibility and freedom than many expect.
Although outside funding is an option, most small businesses are started from the personal funds of the owners and founders. An owner may not be responsible for all the liabilities of a business, but if the business fails, it is the owner's personal investment that is lost.
It is not uncommon for people to empty their savings and retirement accounts in order to start a business venture. If things do not go as planned, this could be a major life setback.
Small businesses generally have a better connection with their customers and local communities. Having this intimate connection allows for small businesses to get a better grasp of their customers and their preferences. Not only does this let businesses tailor their services, but feeling valued by a company regularly turns customers into loyal ones and increases a company's business.
A major disadvantage small businesses face is the inability to compete with larger companies when it comes to purchasing power. A large company may be able to negotiate much lower prices by buying in bulk, whereas a small business may not have the volume to negotiate such favorable prices.
For example, a company like Apple can buy computer hardware parts for little to nothing because they purchase millions of them, but a small computer business will face higher costs, which in turn increases their cost of production.
Likewise, small businesses have limited financial resources so they must make sacrifices in certain business operations. It is hard to spend tons on extravagant employee benefits or marketing a new product when you are strapped for cash and have more pressing matters, such as affording to pay staff and other overhead costs like rent.
For many, even with the disadvantages, small business ownership is the way to go.