Owning a business is a dream that many people share. There are some unique challenges that come with running a business, but there are some great rewards to be experienced as well. It isn’t easy to own a business, especially when first getting started, so there are some pros and cons to consider before finding your first customer. Here are some of the key points to consider.
What Are the Pros of Owning a Business?
1. You get to set your own hours and rules.
When you own a business, then you’re the one who gets to be in control. If you don’t want to open until 11am, then you can make that happen. Want to take a day off? Make it happen. Although different hours and rules will inconvenience certain customers, if your goods or services are wanted, then people will accommodate their own schedules to meet your needs.
2. You get to include your family.
George Murphy is a freelance advertiser who lives in Seattle [we changed his name at his request]. He works full-time online serving clients from Singapore to London and has four children at home. “If I didn’t own my business, then I might as well not be working,” he often says. “The cost of childcare for 4 children would eat my entire income. By working at home, I get to include the kids in everything I do.” Family can also work for your business, making it easy to find a spare set of hands when needed.
3. You really can earn what you’re truly worth.
Although all businesses start small with $0 revenue, how the business grows is up to the owner. It can be slow or fast, focus on mass marketing or niche marketing, and even individual price points can be set. Not every business grows at the same pace, but in general, most business owners are able to grow their business to finally feel like they’re earning what their passions and experiences are really worth.
4. You can write off all of your expenses.
Unlike personal income from a traditional employer, there are a number of different expenses that can get written off when you own your business. From travel costs to lunches to equipment, these can all reduce your overall income liabilities while you still get to benefit from the purchase. Mileage write-offs are especially important since $0.55 per mile can add up quickly as a standardized deduction.
5. You can still save for your retirement.
Owning your own business doesn’t mean that you can’t benefit from employer-based tax-advantaged retirement programs. Self-employment 401k plans, for example, allow business owners to divert $18,000 of their salary to the plan in 2015 and have employer non-elective contributes that equal 50% of the self-employment tax and personal contributions. If there is extra money, then IRA contributions can also be made, including Roth contributions if income levels qualify.
6. You get to follow your passions.
Many jobs are taken out of necessity. When it comes to owning a business, even if it is just a side business, then most people design something which allows them to pursue something they are passionate about. When people love what they do, then that passion becomes a natural marketing point which attracts others and allows the business to grow.
What Are the Cons of Owning a Business?
1. There are long hours that need to be worked.
When you have your own business, then you’re basically on-the-clock 24/7 every day. It becomes very difficult to separate your personal life from your working life. Many people say that they’re great at maintaining separation, but when you’ve got an overdue contract lurking about, it becomes the only thing that gets thought about. Pretty soon those days off begin to disappear completely.
2. Breakdowns can be incredibly costly.
If you work online and there’s an internet outage at your home, then you’re just out of luck. You either go somewhere else that has internet access or wait for the problem to get fixed. If you’re not working, then you’re not making money. If that happened at a traditional employer, it’s more likely that you’d get a break while the problem gets fixed.
3. You’re forced to purchase everything that you need.
If you’re a writer, then you’re going to need a computer. You’ll have to pay for electricity, maybe natural gas, and don’t forget about water and sewer. There’s also insurance to purchase and other associated costs that drag down your bottom line. You can set prices to offset some of these costs, but the bottom line is this: you’ve got to pay for what you need.
4. There’s double taxation.
For people who own their own business in the United States and draw a salary from that business, then there’s a double tax they have to pay on their income. People who are self-employed have to pay the employer and employee share of the Social Security and the Medicare tax. That’s an unexpected 7% of personal income that goes missing that is often a surprise the first year that taxes are filed.
5. Estimated tax payments are also a big problem.
The US also has what is known as a “pay as you go” system of taxation. In other words, if you make money, then you owe money. If a business owner has more than $1,000 in taxes that are owed at the end of the year, then estimated payments will be required in every subsequent year, broken into 4 quarterly payments. If you expect to owe $3,000, then not only will this year’s tax payment be due by April 15, but so will the first quarterly payment for next year, which would be about $800.
6. There are multiple levels of bureaucracy that must be juggled.
For the average business, there is going to be a local business license to get and a sales tax authorization form. If the business is inside of a city’s limits, there might be a city license that must be purchased and a separate city sales tax collected. Counties and states also may have separate licenses that must be obtained, especially with specialty businesses like contractors, plumbers, or restaurant professionals. Each license has renewal deadlines, inspections, and regulations about when to submit taxes that have been collected. For one person, this can be a large headache.
The pros and cons of owning a business involve how to manage it most effectively. If you are an organized person who doesn’t mind taking on the double taxation issues, then it’s a great opportunity to make some money. If not, then working with a traditional employer might be a better way to earn what you feel like you’re worth.