Advantages and Disadvantages of Business Ownership

What are the advantages and disadvantages of business ownership? The pros and cons may vary based on the business type as well as individual circumstances.4 min read

What are the advantages and disadvantages of business ownership? The pros and cons may vary based on the business type as well as individual circumstances.

Small Business Ownership

Being a business owner can be very rewarding and offers several advantages:

  • As a small business owner, you are your own boss and cannot be fired and therefore have more freedom to make important decisions.
  • You may have flexibility to work when and where you want. If you have a family emergency, you don't need to ask your boss's permission to take time off, or you may decide to run your business from home to eliminate a commute.
  • Despite the risks involved, owning a business may provide greater financial rewards.
  • There are more learning opportunities since you're involved with all aspects of your company.
  • You will often have greater personal satisfaction and more creative freedom.

However, there are some disadvantages:

  • You are responsible for the expensive startup costs and financial risks of starting a business.
  • You are more likely to be stressed running your own business versus working for someone else.
  • While there is a chance you will have more flexibility once the business is established, the time commitment when opening a business is more significant than working as an employee elsewhere.
  • Some duties may be less than desirable when you are the business owner, like having to fire an employee.

Advantages to Sole Proprietorship

A sole proprietorship is the most common business organization for a small business owner for several reasons:

  • It is the easiest business type to set up because there is no paperwork to file.
  • Owners have total control of their own business and make their own decisions.
  • Filing taxes is simple.
  • The profits are only taxed once a year on the owner's personal tax returns.
  • If the owner dies, it's easy to liquidate the business's assets.

However, this type of entity also has some disadvantages:

  • Owners are personally liable for the business. This means you could lose your personal assets, like your home, if you lose a judgment.
  • There is no opportunity to bring in outside capital from investors.