Advantages and Disadvantages of Business Ownership and Starting a Business

Read these sections for more detail about starting a business and some of the advantages and disadvantages in store for small business owners.

Starting a Business

KEY TAKEAWAYS

  • Before starting a business, you need to ask yourself a few basic questions:

    1. What, exactly, is my business idea? Is it feasible?
    2. What type of business is right for me? What industry do I want to get into?
    3. Do I want to run a business that's similar to many existing businesses, or do I want to innovate?
    4. Do I want to start a new business, take over an existing one, or buy a franchise?
    5. Do I want to start the business by myself, or do I want company?
    6. What form of business organization do I want?
  • After you've addressed these basic questions, you'll be ready to describe your future business in the form of a business plan - a document that identifies the goals of your proposed business and explains how it will achieve them. Before you actually start up your business, you must also get financing.
  • The key to coming up with a business idea is identifying something that customers want. Your business will probably survive only if its "purpose" is to satisfy its customers - the ultimate users of its goods or services.

  • You can become a small business owner in one of three ways, each of which has advantages and disadvantages:

    1. Starting from scratch. This is the most common - and riskiest - option. Advantage: You start with a clean slate and build the business the way you want. Disadvantage: It's up to you to develop your customer base and build your reputation.
    2. Buying an existing business. This option is not as risky as starting a business from scratch, but it has some drawbacks. Advantages: You'll already have a proven product, current customers, active suppliers, a known location, and trained employees. Disadvantages: It's hard to determine how much to pay for a business; perhaps the current owners have disappointed customers; maybe the location isn't as good as it used to be.
    3. Buying a franchise. Under a franchise setup, a franchiser (the company that sells the franchise) grants the franchisee (the buyer) the right to use a brand name and to sell its goods or services. Advantages: You've bought a prepackaged, ready-to-go business that's proven successful elsewhere; you also get ongoing support from the franchiser. Disadvantages: The cost can be high; you have to play by the franchiser's rules; and franchisers don't always keep their promises.