Course: SLF 125 Business Planning and Startup

Reading

Pros and Cons of Small Business
Pros and Cons of Small Business
Credits
Adapted from Business, Boundless Business Open Textbook, Chapter 7 Small Business and Enterprise
www.boundless.com/business
Creative Commons Attribution-ShareAlike 3.0 Unported License

The Good Life

There are many advantages to owning a business. You no longer have to answer to others, you can direct your business how you'd like to, and you reap the rewards of your personal efforts.

Small business ownership can offer the opportunity to fulfill a lifelong dream of doing a particular type of work and the opportunity to share your passion with others.

Small businesses are often started with the intention of family members working together. Small businesses are handed down to the next generation with great pride and satisfaction.  Although working with family members can be wonderful, it can be very challenging. Personal issues outside of business affairs can creep into the business. Family members know how to push each other’s buttons. Family members may not seriously take instructions from other family members. Power struggles among family members have often been the downfall of a small business.

It is true that being your own boss can free you up from some of the “chores” associated with working for others, but, in many ways you are NOT your own boss. Your customers are your boss, 24 hours a day. There is no one with whom to share the responsibilities. You have to manage and cater to employees, also.  You can't just expect people to willingly work for you because each employee has their own aspirations in life. This means you'll need to cater to their experience while simultaneously making decisions which will benefit the business.

Additionally, when you're the boss all of the major decisions ride on your shoulders. You have to deal with all aspects of the business, not just your specialty strengths. If you are a “people” person, you will have to deal with the financial aspects. If you are a good numbers person, you will have to function as a cheerleader for your business, which may be outside of your personality comfort zone. Thousands upon thousands of dollars will be at your mercy, so if you make the wrong decision, your business can flop. Conversely, making the right decisions can lead to success.
Common Problems of Small Businesses

Small businesses face a variety of problems related to their size. A smaller pool of customers means that smaller amounts of money are coming in.  Even though small businesses don’t have to produce as many products or hire as many employees as bigger firms, some expenses can be about as large as a bigger operation. Rent is an example of this type of cost. Heating and cooling a store front costs as much for daily traffic of 25 customers as it does for 75! A frequent cause of bankruptcy is undercapitalization (not having enough money to support the activities of the business). This is often a result of poor planning rather than economic conditions.

It is common rule of thumb that the entrepreneur should have access to a sum of money at least equal to the projected revenue for the first year of business in addition to his anticipated expenses. For example, if the prospective owner thinks that he will generate $100,000 in revenues in the first year with $150,000 in start-up expenses, he should not have less than $250,000 available. Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he end up in bankruptcy court, under the theory of undercapitalization.

Too many retail owners are not savvy negotiators and sign what they think are "cheap" leases. Consider all factors before signing on the dotted line.

Too many times start-ups and small businesses lack any type of work process necessary to ensure that things are done consistently. Poor controls and unclear processes can lead to quick failure.

Still interested in taking the plunge?