6 pros and cons of starting your own business

No boss to report to, setting your own hours, and doing something you truly enjoy — entrepreneurship is at the heart of the American dream. There are an estimated 33.3 million small businesses in the US and as many as 1.4 million open every year.¹

For many, working remotely during the pandemic may have encouraged people who prefer independence to think about entrepreneurship. The freedom and flexibility that comes with self-employment is ideal for those who like to work autonomously. While the prospect of being your own boss and pursing your passion may be appealing, it’s essential to weigh all aspects before diving into entrepreneurship.

Why do people start their own business?

There are plenty of reasons to start your own business: being your own boss, unlimited potential for growth and earnings, feeling more invested and passionate about your work, and not being subject to someone else’s whims (or limited by their budget).

Whatever your reasons, starting a business comes with both advantages and challenges. Therefore, it’s important to consider the pros and cons before taking the leap into self-employment.

Pros of starting your own business

1. You're in control

As a business owner, you have flexibility over when, where, and how you work. You decide the products and/or services to offer, the clients or customers you will work with, and how much to charge them. You don’t need to choose between passion or profits — both can be a priority. In addition, you get to keep the profits and earn the full value of your work instead of just your salary or wages.

2. You can make your own schedule

During the pandemic, many workers around the world were forced to turn pandemic-related disruptions into opportunities. While millions of small businesses were started during the pandemic, particularly micro businesses (i.e., businesses with 10 or fewer employees), several countries also marked an increase in women entrepreneurs.² Specifically, mothers had to rethink childcare when schools and facilities closed or went remote. Many women solved the problem by starting their own business, allowing them to work from home permanently while balancing their caregiving responsibilities.

While running a business and simultaneously caregiving has its own unique challenges, entrepreneurship offers the flexibility to set your own work hours and priorities, which can be ideal for those who have demanding responsibilities outside their professional lives, such as parents with young children or adults with aging parents who need assistance. Sure enough, our research indicates that almost a quarter (22%) of individuals in the US must split their time between full-time work and caregiving duties.³

3. You can give back to your community

Business owners, particularly those in smaller communities, can have an outsized impact. Whether they are creating jobs or sponsoring a team in the local little league, business owners have an opportunity to create a positive impact on those around them. Even on a small scale, this can make a business owner’s profession more meaningful and improve the community in which they live and work. Many small businesses also contribute to the local economy by generating revenue that partially goes back into the community. If the business becomes a success, the opportunity for larger philanthropic endeavors increases.

Cons of starting your own business

1. You’re responsible for everything

Make no mistake, if you start your own business, you will likely need to be more committed than you were on the 9-5 grind, especially in the early years. You are responsible for launching with a strong business plan in place, ideally with a clear opportunity to enter a high-growth area in an unsaturated market. If you start as a sole proprietor, you will be working on all kinds of tasks, from administrative work to customer service and beyond. Your compensation will be directly tied to the business’s profitability. There may even be times when there are no profits or income, especially during the early years.

2. Paying taxes may get more complicated

New small business owners should be especially careful with taxes: Switching from a straightforward filing on an employee’s W2 to a self-employed small business owner or sole proprietor will be a big adjustment. Among other changes, you may need to file tax returns quarterly instead of annually. You might also be dealing with an entirely new world of tax deductions, and may need to track business expenses and operating costs for potential write-offs during the tax season. Consider working with a tax professional who can help devise a tax-efficient strategy appropriate for your specific situation.

3. No more employer-sponsored benefits

Self-employment also requires working without employer-sponsored benefits. As a business owner, you are responsible for your own benefits package, such as health, life, disability, and dental insurance (among others) — as well as saving for retirement. The US government provides health insurance guidelines for small businesses and those who are self-employed, which can be a good place to start. When it comes to financial protection and retirement saving, your best bet is to talk to a financial professional — they can help you develop a financial strategy that will best work for you and your business.

Starting your own business can be immensely rewarding yet challenging at the same time. By weighing the pros and cons, you can make an informed decision that satisfies your aspirations and sets you on a path toward a fulfilling entrepreneurial adventure.