Whether you decide to follow the secure path of working for someone else or prefer the independence of entrepreneurship depends on your personal preferences. However, which one is right for you?
We explore the pros and cons of work vs. entrepreneurship, making it easier for you to choose.
Work vs. Entrepreneurship
According to this post from Oberlo, new business statistics from the U.S. show an upsurge in business formations since 2020. Generally, new business filings have risen for the last decade, meaning 99.9% of its 31.7 million businesses are small. In the first quarter of 2023, applications increased by 3.69% compared to the same period in 2022.
What drives people to entrepreneurship, and how does it differ from employment?
Entrepreneurs establish and run their own businesses by providing products or services. After expenses, their profits are their earnings. They have the financial responsibility, make business decisions, and must run their business correctly.
On the other hand, employment ensures you earn a salary, either fixed or based on an hourly rate. Your employer assigns you tasks you must complete and goals you must meet to help the company succeed. As an employee, you don’t make financial decisions.
Pros and Cons of Entrepreneurship
The benefits of entrepreneurship make it an appealing choice, but it also has some drawbacks. Make an informed choice after reviewing its pros and cons.
Pro: Manage Your Profits – After meeting all your business expenses, the profits are yours to manage as you see fit. For example, you may decide to reinvest in the business, save or invest elsewhere.
Pro: Wealth Potential – Your business has growth potential. If it takes off, you can expect an increase in profits, meaning you can grow the business and build a cash sum to ensure a comfortable future.
Pro: Work Flexibility – It’s your own business, so you control your work schedule as you see fit. Therefore, if you prefer, you can fit your meetings into a time slot that suits you best, work late into the night, or take time off to relax with your family.
Pro: Choose When to Retire – If you reach your retirement goals, you don’t have to wait until retirement age but can decide to retire earlier by selling the business or earning a passive income by passing its control to someone else.
Con: Startup Costs – Becoming an entrepreneur means starting a business by investing capital to hire premises, find employees, get supplies, etc. You must recoup your capital outlay if you already have the money to invest. However, if you require a loan or venture capital, you must meet the terms of securing the capital. A loan means paying it back with interest, and venture capital investment means giving away a share in the business.
Con: Potential Financial Risk – Several factors can lead a business to financial hardships. Companies rely on sales; when these drop, you must use your savings to meet your expenses. If things get worse, you could face bankruptcy. You can avoid the risk by ensuring your business is not your only income stream until it succeeds. You can opt to retain a full-time position as an employee, making your business your side project until you are sure it’s financially viable.
Con: Added responsibilities and Stress – With your own business, you won’t have all the departments to help you overcome difficulties. You are responsible for HR, accounting, and ensuring you remain compliant. Of course, you can use software and professional advisors for some issues at an added cost, but the responsibilities can prove quite stressful.
Con: Navigating Taxes – Running your own business means you are responsible for considering all your income and expenses when preparing taxation forms to send to your employees. Make sure you have a solution in place. These include accounting software, hiring a full-time or part-time accountant, or having an in-office financial adviser.
Con: Meeting Business Expenses – Besides taxes, businesses must pay salaries after deductions for employee benefits, utilities, insurance, legal fees, etc. Without an HR department, you are also responsible for ensuring staff have employment contracts that meet employment laws. You must also ensure your business remains compliant by meeting annual permit and licensing requirements set by local and state laws—an intimidating list of conditions and expenses.
Pros and Cons of Employment
Employment can offer the consistency and stability you prefer. However, there are also some challenges.
Pro: Dependable Paychecks – Your concern as an employee is to focus on your work while your boss pays you a consistent paycheck. Your boss worries about the business performance but pays you what you expect when it’s time to get your salary or wage.
Pro: You Work Set Hours – Unlike entrepreneurs who often work long hours to ensure their business’s success, most jobs have set work hours. Therefore, you work consistent hours, allowing you to create a routine around them. If your employer encourages hybrid work, then you are ensured reasonable flexibility.
Pro: Enjoy Work Benefits – Some benefits people enjoy in full-time work include health insurance and retirement plans. The larger the company you work for in the U.S., the less out-of-pocket you pay for healthcare.
Pro: Potential Promotions – As you gain experience in your field, you have a better chance of moving up the ladder at work with promotions and management roles. These opportunities may mean more responsibilities, but they also mean an increase in your earning power.
Pro: Career-Building Opportunities – Professional development opportunities like mentorship programs, upskilling courses, mentorship programs, etc., can give your career a boost. Working for an established company benefits your resume and can secure future career opportunities.
Con: Risk of Losing Your Job – Hiring and layoff decisions don’t lie in your hands, and your employer may make some layoffs if the company or the economy faces financial challenges. You could find that your position gets eliminated, creating the challenge of seeking another job.
Con: Working Under Someone Else – As an employee, you must report to someone above you, even if you have a management position.
Con: Less Control – Besides the risk of losing your job or having to report to someone above you, you also have less control as an employee. For example, if you dislike a new policy, you may feel frustrated if no one listens to your concerns.
Con: Less Flexibility – Even though some companies have adopted more flexible work modes, you still need approval to take a vacation. Moreover, you have to meet the responsibilities according to the requirements of your schedule.
Work vs. Entrepreneurship: Which Path is Right for You?
Some say they prefer work’s dependability over entrepreneurship’s uncertainty and challenges. Looking at the pros and cons of work and entrepreneurship can help you decide which suits you best.
Your personality, financial situation, and business savvy can indicate whether you are more suited to entrepreneurship than working as an employee. However, you can switch between the two before deciding which career path suits you best.
Tips to help you decide:
1. Consider your skills and preferences – What are the skills you have that can be beneficial for starting a business? Are you comfortable taking risks associated with entrepreneurship?
2. Analyse Your Financial Situation – Do you have enough funds or access to capital, such as loans or venture capital, to start a business? How stable is your income stream currently? Do you need additional support from family, friends, and partners?
3. Examine Your Level of Commitment– How long and hard are you willing to work on making your business successful? Can you dedicate the necessary time without distractions? Can you manage stress while running a business?
4. Utilize Resources – There are plenty of resources to help you start a business, such as support groups, small business associations, and mentors.
What are the benefits of working as an entrepreneur?
Benefits of working as an entrepreneur include being your own boss, having creative freedom, and potential for higher earnings than a typical job.
How do I decide if entrepreneurship is right for me?
Consider your skills and preferences, analyze your financial situation, examine your level of commitment, and utilize resources such as support groups and mentors. Additionally, you can always test the waters by starting with a side hustle while still working full-time or part-time in another position until you feel confident enough to pursue entrepreneurial ventures full-time.
What are some challenges associated with running your own business?
Challenges with running your own business include the financial risk of investing in a startup, meeting business expenses, and finding qualified staff. Additionally, you may experience stress from managing all aspects of the business.