{"id":52,"date":"2015-04-21T20:58:42","date_gmt":"2015-04-21T20:58:42","guid":{"rendered":"https:\/\/courses.candelalearning.com\/masterybusiness1xngcxmaster\/?post_type=chapter&#038;p=52"},"modified":"2017-07-18T21:32:17","modified_gmt":"2017-07-18T21:32:17","slug":"pros-and-cons-of-owning-a-small-business","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/chapter\/pros-and-cons-of-owning-a-small-business\/","title":{"raw":"Pros and Cons of Owning a Small Business","rendered":"Pros and Cons of Owning a Small Business"},"content":{"raw":"<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/17200354\/6799551981_9b08f258d9_o.jpg\"><img class=\"aligncenter wp-image-8654\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/17200354\/6799551981_9b08f258d9_o-300x240.jpg\" alt=\"Photo of a man sitting in an office or library with a small typewriter on the table. His head rests on his hand, and he looks contemplative.\" width=\"600\" height=\"480\" \/><\/a>\r\n\r\nOwning a small business has its advantages and disadvantages. Each entrepreneur must weigh the pros and the cons carefully and decide whether or not the risk is worth the reward.\r\n<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Describe\u00a0the advantages and disadvantages\u00a0of starting a small business<\/li>\r\n \t<li>Explain why some business ventures fail<\/li>\r\n \t<li>List important considerations in deciding\u00a0to start a business<\/li>\r\n<\/ul>\r\n<\/div>\r\n<h2>Advantages of Small-Business Ownership<\/h2>\r\n<ul>\r\n \t<li><strong>Independence.\u00a0<\/strong>Entrepreneurs are their own bosses. They make the decisions. They choose whom to do business with and what work they will do. They decide what hours to work, as well as what to pay and whether to take vacations. For many entrepreneurs the freedom to control their destiny is enough to outweigh the potential risks.<\/li>\r\n \t<li><strong>Financial gain.\u00a0<\/strong>Entrepreneurship offers a greater possibility of achieving significant financial rewards than working for someone else. Owning your own business removes the income restraint that exists in being someone else's employee. Many entrepreneurs are inspired by the mega-millionaire entrepreneurs we see today, such as Steve Jobs, Elon Musk, Jeff Bezos, and Mark Zuckerberg.<\/li>\r\n \t<li><strong>Control.\u00a0<\/strong>It enables\u00a0one\u00a0to be involved in the total operation of the business, from concept to design to\u00a0creation, from sales to business operations to\u00a0customer response. This ability to be totally immersed in the business is very satisfying to entrepreneurs who are driven by passion and creativity and possess a \"vision\" of what they aim to achieve. This level of involvement allows the business owner to truly create something of their own.<\/li>\r\n \t<li><strong>Prestige.\u00a0<\/strong>It offers the status\u00a0of being the person in charge. Some entrepreneurs are attracted\u00a0to the idea of being the boss. In addition, though, there is the prestige and pride of ownership. When someone asks, \u201cWho did this?\" the entrepreneur can answer,\u00a0\u201cI did.\u201d<\/li>\r\n \t<li><strong>Equity.\u00a0<\/strong>It gives an individual the opportunity to build equity, which can be kept, sold, or passed on to the next generation. It's not uncommon for entrepreneurs to own multiple businesses throughout their life. They establish a company, run it for a while, and later\u00a0sell it to someone else. The\u00a0income from this sale can then be used to finance the\u00a0next venture. If they\u2019re not interested in selling the business, the goal may be to build\u00a0something that can be passed down to their children to help ensure their financial future. One thing is sure:\u00a0In order to fully reap\u00a0the financial benefits of a business venture, you need to be the owner.<\/li>\r\n \t<li><strong>Opportunity.\u00a0<\/strong>Entrepreneurship creates an opportunity for a person to make a contribution. Most new entrepreneurs help the local economy. A few\u2014through their innovations\u2014contribute to society as a whole.<\/li>\r\n<\/ul>\r\nIn addition, small businesses have\u00a0certain advantages over large businesses. Flexibility, generally lean staffing, and the ability to develop close relationships with customers are among the key benefits of small businesses. The digital communication revolution has significantly lowered the cost of reaching customers, and this has been a boon to small startups and big businesses alike.\r\n<h2>Disadvantages of Small-Business Ownership<\/h2>\r\n<div>\r\n\r\nAs the little boy said when he got off his first roller-coaster ride, \"I like the ups but not the downs!\" Here are some of the downsides to owning\u00a0a small business:\r\n\r\n<strong>Time commitment<\/strong>. When someone opens a small business, it's likely, at least in the beginning, that they will have few employees. This leaves all of the duties and responsibilities to the owner. Small-business owners report working more than eighty\u00a0hours a week handling everything from purchasing to banking to advertising. This time commitment can place a strain on family and friends and add to the stress of launching a new business venture.\r\n\r\n<strong>Risk.<\/strong> Even if the business has been structured to minimize the risk and liability to the owner, risk can't\u00a0be completely\u00a0eliminated. For instance, if an individual leaves a secure job to follow an entrepreneurial dream and the business fails, this financial setback can be hard to overcome. Beyond financial risk, entrepreneurs need to consider the risk from product liability, employee disagreements, and regulatory requirements\r\n\r\n<strong>Uncertainty<\/strong>. Even though the business may be successful at the start, external factors such as downturns in the economy, new competitors entering the marketplace, or shifts in consumer demand may stall the businesses growth. Even entrepreneurs who go through a comprehensive planning process will never be able to anticipate all of the potential changes in the business environment.\r\n\r\n<strong>Financial commitment.<\/strong> Even the smallest of business ventures requires a certain amount of capital to start. For many people starting small businesses, their initial source of funding is personal savings, investments, or retirement funds. Committing these types of funds to a business venture makes\u00a0them unavailable for personal or family needs. In most cases\u00a0where a small business receives start-up funding through a loan, the entrepreneur must secure the loan by pledging personal assets, such as a\u00a0home. Risking\u00a0the equity in one's home is a financial commitment not all entrepreneurs are willing to make.\r\n\r\nIn spite of the\u00a0potential disadvantages, most small-business owners are pleased with their decision to start a business. A survey conducted by the <em>Wall Street Journal<\/em> and Cicco and Associates Inc. indicates that small-business owners and top-level corporate executives agree overwhelmingly that small-business owners \"are more satisfied with their work than their corporate executive counterparts.\"[footnote]Cicco and Associates Inc., \"Type E Personality\u2014Happy Days\u2014Entrepreneurs Top Satisfaction Survey,\" Entrepreneur.com[\/footnote]\r\n<h2>Why Some Ventures Fail<\/h2>\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/17171734\/5727294500_f96bf2b016_b.jpg\"><img class=\"aligncenter wp-image-8636\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/17171734\/5727294500_f96bf2b016_b-300x258.jpg\" alt=\"Cartoon, showing a red fish with a small stand advertising &quot;World's Best Scuba Gear.&quot;\" width=\"600\" height=\"515\" \/><\/a>\r\n<h3>Valuable Lessons<\/h3>\r\nThe odds are definitely stacked against small business owners and would-be entrepreneurs. According to the Small Business Administration (SBA), \"About half of all new establishments survive five years or more and about one-third survive 10 years or more. As one would expect, the probability of survival increases with a firm\u2019s age. Survival rates have changed little over time.\u201d [footnote]U.S. Bureau of Labor Statistics, BED, cited in \"<a href=\"https:\/\/www.linkedin.com\/pulse\/20140915223641-170128193-what-are-the-real-small-business-survival-rates\" target=\"_blank\" rel=\"noopener\">What Are the Real Small Business Survival Rates?<\/a>\"[\/footnote] That's why it's so important to understand how and where things go wrong\u2014such information\u00a0offers valuable lessons on what to avoid. There are six main causes of small business startup failure:\r\n<h4>Lack of Planning<\/h4>\r\nStarting a business without planning where you want to go is like starting a car journey with no idea of your final destination or a map to get there; you\u2019re bound to get lost. To avoid this mistake, set a clear goal of where you want to be and how you plan\u00a0to get there.\r\n<h4>Failure\u00a0to Delegate<\/h4>\r\nWithin every business someone needs to focus\u00a0on the bigger picture and have an overview of everything happening internally and externally around the company. That person should be you, but\u00a0if your\u00a0your head is buried in the accounts, you won\u2019t. So delegate and outsource all the tasks that can be done by others, and free yourself to concentrate\u00a0on the bigger picture.\r\n<h4>Unwillingness to Change<\/h4>\r\nAs a small business you can't\u00a0afford to stand still\u00a0while your market and the world around you moves\u00a0forward. Adapt and develop your small business so it's forward-thinking and innovative, not behind the times.\r\n<h4>Forgetting That Cash Is King<\/h4>\r\nA small business needs to monitor its\u00a0cash flow closely. As soon as it loses track\u00a0of the money, it's vulnerable\u00a0to failure. Plot and analyze your incomings and outgoings to make sure your small business stays on the right financial track. Don\u2019t expect massive profits from the outset, but don\u2019t accept a loss, either.\r\n<h4>Lack of Objective Targets<\/h4>\r\nFailing to\u00a0measure the success of campaigns, products, or services can be disastrous for a small business. Is that PR campaign you're\u00a0running really worth the money? Does Twitter really bring traffic to your Web site? Know what to measure, and you\u2019ll know how successful you are.\r\n<h4>Failure to Ask\u00a0the Right Questions<\/h4>\r\nWhen you're a small-business start-up, knowing which questions (and whom) to ask is difficult. There are numerous resources, such as the SBA, local economic development agencies, and chambers of commerce, that are great places to start. Part of the process is \"knowing what you don't know,\" and such organizations\u00a0can\u00a0help you figure that out.\r\n\r\nWhile\u00a0avoiding these pitfalls won\u2019t guarantee small-business success, knowing <em>what not to do<\/em> can help you to be proactive and focus on the things you should do.\r\n<h2>Important Considerations<\/h2>\r\n<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/17185504\/7199498340_83dc0a1364_b.jpg\"><img class=\"aligncenter wp-image-8641\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/17185504\/7199498340_83dc0a1364_b-300x187.jpg\" alt=\"Photo of a man stepping out of the ocean onto the sand and another man, in the distance, heading into the surf.\" width=\"600\" height=\"374\" \/><\/a>\r\n\r\nThe entrepreneur's challenge is to balance decisiveness with caution\u2014to be a person capable of seizing an opportunity but also one who has done enough preparatory work to be well informed and not assume unnecessary risk. Preparatory work includes evaluating the market opportunity, developing the product or service, preparing a good business plan, figuring out how much capital is needed, and making arrangements to obtain that capital.\r\n\r\nEconomists have analyzed a range of entrepreneurial successes and failures and identified key issues\u00a0for up-and-coming business owners to consider carefully ahead of time. Taking them into account can reduce risk; ignoring them can contribute\u00a0to failure. If you're considering entrepreneurship, ask yourself the following\u00a0questions to make sure you\u2019re thinking about the key business decisions:\r\n\r\n<b>Motivation<\/b>: What is your\u00a0incentive for starting a business? Is it money alone? Are you prepared to spend the time and money needed to get your\u00a0business started? True, many entrepreneurs acquire\u00a0great wealth. However, money is almost always tight in the start-up and early phases of a new business. Many entrepreneurs don't even take a salary until they can do so and still leave the firm with a positive cash flow.\r\n\r\n<b>Strategy<\/b>: What products or services will your\u00a0business provide? What differentiates your\u00a0business idea and the products or services you will provide from others in the market? Who is your\u00a0ideal customer? Who is your\u00a0competition? Is the plan to compete solely on the basis of selling price? Price is important, but most economists agree that it's extremely risky to compete on price alone. Large firms that produce huge quantities have the advantage in lowering costs.\u00a0It's also important to decide how you plan to manage and advertise your business.\r\n\r\n<b>Realistic vision<\/b>: What kind of business do you want, and how much will it cost to get started? Will you need a loan? Is there a realistic vision of the enterprise's potential? How long will it take to make your\u00a0product or service available? How long until you start making a profit? Insufficient operating funds are the cause of many business failures. Entrepreneurs often underestimate start-up costs and overestimate sales revenues in their business plans. Some analysts advise adding 50 percent to final cost estimates and reducing sales projections. Only then can the entrepreneur examine cash-flow projections and decide if he or she is ready to launch a new business.\r\n\r\n<strong>Other Key Decisions and Planning<\/strong>\r\n\r\nExperts can help with many decisions on financing, taxes, insurance, location analysis, or supplier relationships. Some bankers and insurance agents will give advice at no\u00a0charge to encourage a relationship. There are even experts to help with planning itself!\r\n\r\nThere is no right or wrong way\u00a0to answer these questions or do the planning. Rather, the answers and approach will be based on each entrepreneur's judgment. An entrepreneur gathers as much information and advice as possible before making these and other crucial decisions.\r\n<h2>Check Your Understanding<\/h2>\r\nAnswer the question(s) below to see how well you understand the topics covered above. This short quiz does <strong>not<\/strong> count toward your grade in the class, and you can retake it an unlimited number of times.\r\n\r\nUse this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.\r\n\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/3014\r\n\r\n<\/div>","rendered":"<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/17200354\/6799551981_9b08f258d9_o.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-8654\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/17200354\/6799551981_9b08f258d9_o-300x240.jpg\" alt=\"Photo of a man sitting in an office or library with a small typewriter on the table. His head rests on his hand, and he looks contemplative.\" width=\"600\" height=\"480\" \/><\/a><\/p>\n<p>Owning a small business has its advantages and disadvantages. Each entrepreneur must weigh the pros and the cons carefully and decide whether or not the risk is worth the reward.<\/p>\n<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Describe\u00a0the advantages and disadvantages\u00a0of starting a small business<\/li>\n<li>Explain why some business ventures fail<\/li>\n<li>List important considerations in deciding\u00a0to start a business<\/li>\n<\/ul>\n<\/div>\n<h2>Advantages of Small-Business Ownership<\/h2>\n<ul>\n<li><strong>Independence.\u00a0<\/strong>Entrepreneurs are their own bosses. They make the decisions. They choose whom to do business with and what work they will do. They decide what hours to work, as well as what to pay and whether to take vacations. For many entrepreneurs the freedom to control their destiny is enough to outweigh the potential risks.<\/li>\n<li><strong>Financial gain.\u00a0<\/strong>Entrepreneurship offers a greater possibility of achieving significant financial rewards than working for someone else. Owning your own business removes the income restraint that exists in being someone else&#8217;s employee. Many entrepreneurs are inspired by the mega-millionaire entrepreneurs we see today, such as Steve Jobs, Elon Musk, Jeff Bezos, and Mark Zuckerberg.<\/li>\n<li><strong>Control.\u00a0<\/strong>It enables\u00a0one\u00a0to be involved in the total operation of the business, from concept to design to\u00a0creation, from sales to business operations to\u00a0customer response. This ability to be totally immersed in the business is very satisfying to entrepreneurs who are driven by passion and creativity and possess a &#8220;vision&#8221; of what they aim to achieve. This level of involvement allows the business owner to truly create something of their own.<\/li>\n<li><strong>Prestige.\u00a0<\/strong>It offers the status\u00a0of being the person in charge. Some entrepreneurs are attracted\u00a0to the idea of being the boss. In addition, though, there is the prestige and pride of ownership. When someone asks, \u201cWho did this?&#8221; the entrepreneur can answer,\u00a0\u201cI did.\u201d<\/li>\n<li><strong>Equity.\u00a0<\/strong>It gives an individual the opportunity to build equity, which can be kept, sold, or passed on to the next generation. It&#8217;s not uncommon for entrepreneurs to own multiple businesses throughout their life. They establish a company, run it for a while, and later\u00a0sell it to someone else. The\u00a0income from this sale can then be used to finance the\u00a0next venture. If they\u2019re not interested in selling the business, the goal may be to build\u00a0something that can be passed down to their children to help ensure their financial future. One thing is sure:\u00a0In order to fully reap\u00a0the financial benefits of a business venture, you need to be the owner.<\/li>\n<li><strong>Opportunity.\u00a0<\/strong>Entrepreneurship creates an opportunity for a person to make a contribution. Most new entrepreneurs help the local economy. A few\u2014through their innovations\u2014contribute to society as a whole.<\/li>\n<\/ul>\n<p>In addition, small businesses have\u00a0certain advantages over large businesses. Flexibility, generally lean staffing, and the ability to develop close relationships with customers are among the key benefits of small businesses. The digital communication revolution has significantly lowered the cost of reaching customers, and this has been a boon to small startups and big businesses alike.<\/p>\n<h2>Disadvantages of Small-Business Ownership<\/h2>\n<div>\n<p>As the little boy said when he got off his first roller-coaster ride, &#8220;I like the ups but not the downs!&#8221; Here are some of the downsides to owning\u00a0a small business:<\/p>\n<p><strong>Time commitment<\/strong>. When someone opens a small business, it&#8217;s likely, at least in the beginning, that they will have few employees. This leaves all of the duties and responsibilities to the owner. Small-business owners report working more than eighty\u00a0hours a week handling everything from purchasing to banking to advertising. This time commitment can place a strain on family and friends and add to the stress of launching a new business venture.<\/p>\n<p><strong>Risk.<\/strong> Even if the business has been structured to minimize the risk and liability to the owner, risk can&#8217;t\u00a0be completely\u00a0eliminated. For instance, if an individual leaves a secure job to follow an entrepreneurial dream and the business fails, this financial setback can be hard to overcome. Beyond financial risk, entrepreneurs need to consider the risk from product liability, employee disagreements, and regulatory requirements<\/p>\n<p><strong>Uncertainty<\/strong>. Even though the business may be successful at the start, external factors such as downturns in the economy, new competitors entering the marketplace, or shifts in consumer demand may stall the businesses growth. Even entrepreneurs who go through a comprehensive planning process will never be able to anticipate all of the potential changes in the business environment.<\/p>\n<p><strong>Financial commitment.<\/strong> Even the smallest of business ventures requires a certain amount of capital to start. For many people starting small businesses, their initial source of funding is personal savings, investments, or retirement funds. Committing these types of funds to a business venture makes\u00a0them unavailable for personal or family needs. In most cases\u00a0where a small business receives start-up funding through a loan, the entrepreneur must secure the loan by pledging personal assets, such as a\u00a0home. Risking\u00a0the equity in one&#8217;s home is a financial commitment not all entrepreneurs are willing to make.<\/p>\n<p>In spite of the\u00a0potential disadvantages, most small-business owners are pleased with their decision to start a business. A survey conducted by the <em>Wall Street Journal<\/em> and Cicco and Associates Inc. indicates that small-business owners and top-level corporate executives agree overwhelmingly that small-business owners &#8220;are more satisfied with their work than their corporate executive counterparts.&#8221;<a class=\"footnote\" title=\"Cicco and Associates Inc., &quot;Type E Personality\u2014Happy Days\u2014Entrepreneurs Top Satisfaction Survey,&quot; Entrepreneur.com\" id=\"return-footnote-52-1\" href=\"#footnote-52-1\" aria-label=\"Footnote 1\"><sup class=\"footnote\">[1]<\/sup><\/a><\/p>\n<h2>Why Some Ventures Fail<\/h2>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/17171734\/5727294500_f96bf2b016_b.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-8636\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/17171734\/5727294500_f96bf2b016_b-300x258.jpg\" alt=\"Cartoon, showing a red fish with a small stand advertising &quot;World's Best Scuba Gear.&quot;\" width=\"600\" height=\"515\" \/><\/a><\/p>\n<h3>Valuable Lessons<\/h3>\n<p>The odds are definitely stacked against small business owners and would-be entrepreneurs. According to the Small Business Administration (SBA), &#8220;About half of all new establishments survive five years or more and about one-third survive 10 years or more. As one would expect, the probability of survival increases with a firm\u2019s age. Survival rates have changed little over time.\u201d <a class=\"footnote\" title=\"U.S. Bureau of Labor Statistics, BED, cited in &quot;What Are the Real Small Business Survival Rates?&quot;\" id=\"return-footnote-52-2\" href=\"#footnote-52-2\" aria-label=\"Footnote 2\"><sup class=\"footnote\">[2]<\/sup><\/a> That&#8217;s why it&#8217;s so important to understand how and where things go wrong\u2014such information\u00a0offers valuable lessons on what to avoid. There are six main causes of small business startup failure:<\/p>\n<h4>Lack of Planning<\/h4>\n<p>Starting a business without planning where you want to go is like starting a car journey with no idea of your final destination or a map to get there; you\u2019re bound to get lost. To avoid this mistake, set a clear goal of where you want to be and how you plan\u00a0to get there.<\/p>\n<h4>Failure\u00a0to Delegate<\/h4>\n<p>Within every business someone needs to focus\u00a0on the bigger picture and have an overview of everything happening internally and externally around the company. That person should be you, but\u00a0if your\u00a0your head is buried in the accounts, you won\u2019t. So delegate and outsource all the tasks that can be done by others, and free yourself to concentrate\u00a0on the bigger picture.<\/p>\n<h4>Unwillingness to Change<\/h4>\n<p>As a small business you can&#8217;t\u00a0afford to stand still\u00a0while your market and the world around you moves\u00a0forward. Adapt and develop your small business so it&#8217;s forward-thinking and innovative, not behind the times.<\/p>\n<h4>Forgetting That Cash Is King<\/h4>\n<p>A small business needs to monitor its\u00a0cash flow closely. As soon as it loses track\u00a0of the money, it&#8217;s vulnerable\u00a0to failure. Plot and analyze your incomings and outgoings to make sure your small business stays on the right financial track. Don\u2019t expect massive profits from the outset, but don\u2019t accept a loss, either.<\/p>\n<h4>Lack of Objective Targets<\/h4>\n<p>Failing to\u00a0measure the success of campaigns, products, or services can be disastrous for a small business. Is that PR campaign you&#8217;re\u00a0running really worth the money? Does Twitter really bring traffic to your Web site? Know what to measure, and you\u2019ll know how successful you are.<\/p>\n<h4>Failure to Ask\u00a0the Right Questions<\/h4>\n<p>When you&#8217;re a small-business start-up, knowing which questions (and whom) to ask is difficult. There are numerous resources, such as the SBA, local economic development agencies, and chambers of commerce, that are great places to start. Part of the process is &#8220;knowing what you don&#8217;t know,&#8221; and such organizations\u00a0can\u00a0help you figure that out.<\/p>\n<p>While\u00a0avoiding these pitfalls won\u2019t guarantee small-business success, knowing <em>what not to do<\/em> can help you to be proactive and focus on the things you should do.<\/p>\n<h2>Important Considerations<\/h2>\n<p><a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/17185504\/7199498340_83dc0a1364_b.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-8641\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/143\/2016\/11\/17185504\/7199498340_83dc0a1364_b-300x187.jpg\" alt=\"Photo of a man stepping out of the ocean onto the sand and another man, in the distance, heading into the surf.\" width=\"600\" height=\"374\" \/><\/a><\/p>\n<p>The entrepreneur&#8217;s challenge is to balance decisiveness with caution\u2014to be a person capable of seizing an opportunity but also one who has done enough preparatory work to be well informed and not assume unnecessary risk. Preparatory work includes evaluating the market opportunity, developing the product or service, preparing a good business plan, figuring out how much capital is needed, and making arrangements to obtain that capital.<\/p>\n<p>Economists have analyzed a range of entrepreneurial successes and failures and identified key issues\u00a0for up-and-coming business owners to consider carefully ahead of time. Taking them into account can reduce risk; ignoring them can contribute\u00a0to failure. If you&#8217;re considering entrepreneurship, ask yourself the following\u00a0questions to make sure you\u2019re thinking about the key business decisions:<\/p>\n<p><b>Motivation<\/b>: What is your\u00a0incentive for starting a business? Is it money alone? Are you prepared to spend the time and money needed to get your\u00a0business started? True, many entrepreneurs acquire\u00a0great wealth. However, money is almost always tight in the start-up and early phases of a new business. Many entrepreneurs don&#8217;t even take a salary until they can do so and still leave the firm with a positive cash flow.<\/p>\n<p><b>Strategy<\/b>: What products or services will your\u00a0business provide? What differentiates your\u00a0business idea and the products or services you will provide from others in the market? Who is your\u00a0ideal customer? Who is your\u00a0competition? Is the plan to compete solely on the basis of selling price? Price is important, but most economists agree that it&#8217;s extremely risky to compete on price alone. Large firms that produce huge quantities have the advantage in lowering costs.\u00a0It&#8217;s also important to decide how you plan to manage and advertise your business.<\/p>\n<p><b>Realistic vision<\/b>: What kind of business do you want, and how much will it cost to get started? Will you need a loan? Is there a realistic vision of the enterprise&#8217;s potential? How long will it take to make your\u00a0product or service available? How long until you start making a profit? Insufficient operating funds are the cause of many business failures. Entrepreneurs often underestimate start-up costs and overestimate sales revenues in their business plans. Some analysts advise adding 50 percent to final cost estimates and reducing sales projections. Only then can the entrepreneur examine cash-flow projections and decide if he or she is ready to launch a new business.<\/p>\n<p><strong>Other Key Decisions and Planning<\/strong><\/p>\n<p>Experts can help with many decisions on financing, taxes, insurance, location analysis, or supplier relationships. Some bankers and insurance agents will give advice at no\u00a0charge to encourage a relationship. There are even experts to help with planning itself!<\/p>\n<p>There is no right or wrong way\u00a0to answer these questions or do the planning. Rather, the answers and approach will be based on each entrepreneur&#8217;s judgment. An entrepreneur gathers as much information and advice as possible before making these and other crucial decisions.<\/p>\n<h2>Check Your Understanding<\/h2>\n<p>Answer the question(s) below to see how well you understand the topics covered above. This short quiz does <strong>not<\/strong> count toward your grade in the class, and you can retake it an unlimited number of times.<\/p>\n<p>Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.<\/p>\n<p>\t<iframe id=\"lumen_assessment_3014\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=3014&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_3014\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-52\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Revision and adaptation. <strong>Authored by<\/strong>: Linda Williams and Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Check Your Understanding. <strong>Authored by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Day 22. <strong>Authored by<\/strong>: David Childers. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/davidchilders\/6799551981\/\">https:\/\/www.flickr.com\/photos\/davidchilders\/6799551981\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Why Do So Many Small Business Startups Fail?. <strong>Authored by<\/strong>: Stefan Toepfer. <strong>Provided by<\/strong>: The Small Business Blog. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/sme-blog.com\/sme-blog\/why-do-so-many-small-business-start-ups-fail\">http:\/\/sme-blog.com\/sme-blog\/why-do-so-many-small-business-start-ups-fail<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><li>Scuba-shop illustration. <strong>Authored by<\/strong>: Frits Ahlefeldt FA-L.com. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/hikingartist\/5727294500\/\">https:\/\/www.flickr.com\/photos\/hikingartist\/5727294500\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/\">CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives <\/a><\/em><\/li><li>Decision. <strong>Authored by<\/strong>: Bill Collison. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.flickr.com\/photos\/billcollison\/7199498340\/\">https:\/\/www.flickr.com\/photos\/billcollison\/7199498340\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc\/4.0\/\">CC BY-NC: Attribution-NonCommercial<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">Public domain content<\/div><ul class=\"citation-list\"><li>Why Become an Entrepreneur?. <strong>Provided by<\/strong>: U.S. Department of State. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/iipdigital.usembassy.gov\/st\/english\/publication\/2008\/06\/20080603212324eaifas0.1164362.html#ixzz4Q5ikOKWu\">http:\/\/iipdigital.usembassy.gov\/st\/english\/publication\/2008\/06\/20080603212324eaifas0.1164362.html#ixzz4Q5ikOKWu<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/about\/pdm\">Public Domain: No Known Copyright<\/a><\/em><\/li><li>Twenty Questions Before Starting a Business. <strong>Provided by<\/strong>: U.S. Small Business Association. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.sba.gov\/content\/20-questions-before-starting-business\">https:\/\/www.sba.gov\/content\/20-questions-before-starting-business<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/about\/pdm\">Public Domain: No Known Copyright<\/a><\/em><\/li><li>Decisions and Downfalls. <strong>Provided by<\/strong>: U.S. Department of State. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/iipdigital.usembassy.gov\/st\/english\/publication\/2008\/06\/20080603213245eaifas0.3291284.html#ixzz4Q5w95PTt\">http:\/\/iipdigital.usembassy.gov\/st\/english\/publication\/2008\/06\/20080603213245eaifas0.3291284.html#ixzz4Q5w95PTt<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/about\/pdm\">Public Domain: No Known Copyright<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section><hr class=\"before-footnotes clear\" \/><div class=\"footnotes\"><ol><li id=\"footnote-52-1\">Cicco and Associates Inc., \"Type E Personality\u2014Happy Days\u2014Entrepreneurs Top Satisfaction Survey,\" Entrepreneur.com <a href=\"#return-footnote-52-1\" class=\"return-footnote\" aria-label=\"Return to footnote 1\">&crarr;<\/a><\/li><li id=\"footnote-52-2\">U.S. Bureau of Labor Statistics, BED, cited in \"<a href=\"https:\/\/www.linkedin.com\/pulse\/20140915223641-170128193-what-are-the-real-small-business-survival-rates\" target=\"_blank\" rel=\"noopener\">What Are the Real Small Business Survival Rates?<\/a>\" <a href=\"#return-footnote-52-2\" class=\"return-footnote\" aria-label=\"Return to footnote 2\">&crarr;<\/a><\/li><\/ol><\/div>","protected":false},"author":78,"menu_order":7,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Revision and adaptation\",\"author\":\"Linda Williams and Lumen Learning\",\"organization\":\"\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"pd\",\"description\":\"Why Become an Entrepreneur?\",\"author\":\"\",\"organization\":\"U.S. Department of State\",\"url\":\"http:\/\/iipdigital.usembassy.gov\/st\/english\/publication\/2008\/06\/20080603212324eaifas0.1164362.html#ixzz4Q5ikOKWu\",\"project\":\"\",\"license\":\"pd\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Day 22\",\"author\":\"David Childers\",\"organization\":\"\",\"url\":\"https:\/\/www.flickr.com\/photos\/davidchilders\/6799551981\/\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Why Do So Many Small Business Startups Fail?\",\"author\":\"Stefan Toepfer\",\"organization\":\"The Small Business Blog\",\"url\":\"http:\/\/sme-blog.com\/sme-blog\/why-do-so-many-small-business-start-ups-fail\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Scuba-shop illustration\",\"author\":\"Frits Ahlefeldt FA-L.com\",\"organization\":\"\",\"url\":\"https:\/\/www.flickr.com\/photos\/hikingartist\/5727294500\/\",\"project\":\"\",\"license\":\"cc-by-nc-nd\",\"license_terms\":\"\"},{\"type\":\"original\",\"description\":\"Check Your Understanding\",\"author\":\"Lumen Learning\",\"organization\":\"\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"pd\",\"description\":\"Twenty Questions Before Starting a Business\",\"author\":\"\",\"organization\":\"U.S. Small Business Association\",\"url\":\"https:\/\/www.sba.gov\/content\/20-questions-before-starting-business\",\"project\":\"\",\"license\":\"pd\",\"license_terms\":\"\"},{\"type\":\"pd\",\"description\":\"Decisions and Downfalls\",\"author\":\"\",\"organization\":\"U.S. Department of State\",\"url\":\"http:\/\/iipdigital.usembassy.gov\/st\/english\/publication\/2008\/06\/20080603213245eaifas0.3291284.html#ixzz4Q5w95PTt\",\"project\":\"\",\"license\":\"pd\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Decision\",\"author\":\"Bill Collison\",\"organization\":\"\",\"url\":\"https:\/\/www.flickr.com\/photos\/billcollison\/7199498340\/\",\"project\":\"\",\"license\":\"cc-by-nc\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"9aca5732-5ed4-4115-a727-60963d791d99, 4305949c-83d4-47c8-add3-5c301ab4694b","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-52","chapter","type-chapter","status-publish","hentry"],"part":87,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/wp-json\/pressbooks\/v2\/chapters\/52","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/wp-json\/wp\/v2\/users\/78"}],"version-history":[{"count":26,"href":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/wp-json\/pressbooks\/v2\/chapters\/52\/revisions"}],"predecessor-version":[{"id":11515,"href":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/wp-json\/pressbooks\/v2\/chapters\/52\/revisions\/11515"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/wp-json\/pressbooks\/v2\/parts\/87"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/wp-json\/pressbooks\/v2\/chapters\/52\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/wp-json\/wp\/v2\/media?parent=52"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/wp-json\/pressbooks\/v2\/chapter-type?post=52"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/wp-json\/wp\/v2\/contributor?post=52"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-wmopen-introbusiness\/wp-json\/wp\/v2\/license?post=52"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}