Reading: Advantages and Disadvantages of Small-Business Ownership

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.

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.

Advantages of Small-Business Ownership

  • Independence. 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.
  • Financial gain. 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.
  • Control. It enables one to be involved in the total operation of the business, from concept to design to creation, from sales to business operations to customer 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.
  • Prestige. It offers the status of being the person in charge. Some entrepreneurs are attracted to the idea of being the boss. In addition, though, there is the prestige and pride of ownership. When someone asks, “Who did this?” the entrepreneur can answer, “I did.”
  • Equity. 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 sell it to someone else. The income from this sale can then be used to finance the next venture. If they’re not interested in selling the business, the goal may be to build something that can be passed down to their children to help ensure their financial future. One thing is sure: In order to fully reap the financial benefits of a business venture, you need to be the owner.
  • Opportunity. Entrepreneurship creates an opportunity for a person to make a contribution. Most new entrepreneurs help the local economy. A few—through their innovations—contribute to society as a whole.

In addition, small businesses have certain 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.

Disadvantages of Small-Business Ownership

As 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 a small business:

Time commitment. 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 hours 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.

Risk. Even if the business has been structured to minimize the risk and liability to the owner, risk can’t be completely eliminated. 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

Uncertainty. 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.

Financial commitment. 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 them unavailable for personal or family needs. In most cases where a small business receives start-up funding through a loan, the entrepreneur must secure the loan by pledging personal assets, such as a home. Risking the equity in one’s home is a financial commitment not all entrepreneurs are willing to make.

In spite of the potential disadvantages, most small-business owners are pleased with their decision to start a business. A survey conducted by the Wall Street Journal 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.”[1]




  1. Cicco and Associates Inc., "Type E Personality—Happy Days—Entrepreneurs Top Satisfaction Survey,"