Disadvantages of Small Business

by George N. Root III; Updated September 26, 2017
Owning a small business can have its disadvantages.

There are several advantages to owning a small business. You may qualify for government funding that larger businesses are not privy to. The small business can adapt to changes in the marketplace quicker than the larger business and can have a more personal feeling with its employees, which helps in creating a better working atmosphere. But there are also several disadvantages to being a small business as well.

Attracting Talent

A larger company tends to have greater resources to offer top talent within your industry, and those resources are often used to attract that top talent. In order to grow your business you need qualified people in key positions. A larger business can offer more advancement, a more recognizable name that could help in the execution of work duties and potentially more pay and benefits than a small business. A small business would need to use the potential for growth as a way to attract top talent, and that may not be enough to get the people your company needs to become successful.

Name Recognition

When a small company is out in the marketplace trying to win business, it is inevitable that it will come across some of its larger competitors. A larger business has a level of name recognition that a smaller business does not have. To some potential clients, there is a sense of confidence in doing business with a company that has an established name within the industry as opposed to going with a relatively unknown small business.

Raising Funds

A small business owner is constantly looking for sources of funding for the business. While the federal government offers opportunities for grants to small business, private investors may not be as willing to give access to funding. A small business that does not have the market share or presence in the marketplace that a larger business has may find it difficult to convince venture capitalists and other private investors to put money into the business and help with growth. Even banks may make lending difficult for a small business by offering higher interest rates on loans than they would offer to a larger business.

Downturns in Revenue

When a larger company experiences a downturn in revenue, it may have enough reserve cash on hand to survive the downturn. The reputation of the larger business may allow it to negotiate terms with vendors that would help to stretch revenue until sales pick up again. A small business operates on a tighter budget and a large downturn in sales could mean the end of that small business if reserves are not available or a line of credit is not offered by a lender.

About the Author

George N. Root III began writing professionally in 1985. His publishing credits include a weekly column in the "Lockport Union Sun and Journal" along with the "Spectrum," the "Niagara Falls Gazette," "Tonawanda News," "Watertown Daily News" and the "Buffalo News." Root has a Bachelor of Arts in English from the State University of New York, Buffalo.

Photo Credits

  • business colleagues preparing for business meeting image by Vladimir Melnik from Fotolia.com