Low unemployment and the resulting consumer confidence means it may be a good time to think about starting your own business. If that sounds appealing to you, you’re not alone. In fact, about 40,000 new businesses start up each year in Wisconsin and, startlingly, almost four out of five of them are solo operations, according the Small Business Administration.
If you’re considering starting a business in 2017, here’s a look at the pros and cons of going solo.
Simplicity—A sole proprietorship is the easiest business model to establish. You don’t have to worry about high start-up costs or other annual costs of a limited liability company (LLC) or corporation. Furthermore, you can claim business losses and gains on your personal tax return.
Make your own decisions—You’re not at the whim of a boss or limited by others’ perception of your resume when you want to pursue something that excites you. If you have a vision or an inclination to try new strategies, products or services, you can go for it. The freedom to make decisions and carry out your own vision is a prime motivator for many solo entrepreneurs.
Good money—Yes, the financial risks are greater, but the paybacks of running your own business can be sizeable. Thomas Stanley and William Danko, authors of The Millionaire Next Door, found that self-employed individuals are four times more likely to be millionaires than those working for someone else. In theory, a sole proprietor’s earning potential is unlimited, given the proper combination of ideas and ambition. As a business owner, you benefit directly from your success. You create and collect the financial rewards of your own hard work.
Income fluctuation—As a business owner, you may not always have the security of a steady paycheck. The whims of the market will pose risks to potential revenue. Regardless of market trends, it usually takes time to get established and see the fruits of your labors. If times get tough, you may need to look to outside sources to help you grow or even remain steady.
Long hours—It’s a given that most solo business owners tend to work longer hours. Sick pay and vacation leave don’t apply when you’re your only employee, and you don’t make money on days you don’t work.
The buck stops with you— Broken equipment, accidents, shifts in markets or moods or media: you answer to all of it. From PR to accounting to technology issues to liability, the buck stops with you.
Risk—Speaking of liability, lawsuits can be especially stressful for sole proprietors because the owner is personally liable for any claims against the business. This means that if your business is sued for a breach of contract or negligence in performing services or providing product, your personal property and assets are on the line. Likewise, if your business gets in over its head with debt, your personal assets can be seized to pay creditors. In contrast, a partnership or corporation or LLC can offer more barriers between business assets and personal assets. The good news is that you can create a corporation or LLC with you as the only owner and employee.
Risk and reward seem to go hand in hand with most scenarios, and solo entrepreneurship is no exception. A little preparation and prevention can go a long way with making sure you’re ready to go it alone.