The Risk & Rewards of Entrepreneurship!
The most critical aspect of assessing whether to become an entrepreneur is assessing the trade-off between the reality of the risks of starting a business and the potential rewards, including:
- Quantitative risks and rewards, such as the money invested in the business versus the potential money that can be made.
- Qualitative risks and rewards, such as having less time with family and doing work that is not interesting, but having a less time-consuming commute.
The possibility of rewards has to be large and important enough to justify taking on the risks and issues. Entrepreneurs need to evaluate how much return they would receive by investing their time, money, effort, and emotions and compare it with how much they could make working for someone else or investing elsewhere.
When entrepreneurs give up their jobs to start businesses, they must realize they are giving up the benefits and resources available to employees of a company, including vacation time, health insurance, and other benefits. Owners of start-ups rarely have administrative help, technical support, abundant office supplies, enough free office space, and the credibility, clout, and existing contracts that established companies have. Entrepreneurs must provide support and company benefits to themselves and their employees.
As business owners, they either do without perks or pay for them. Also, entrepreneurs face professional isolation after they start their businesses and leave established professional networks of coworkers.
If entrepreneurs want to grow their companies beyond just a “job-business”, they must hire employees.
There are many factors involved in hiring employees:
- Creating and finding time for a hiring process: advertising the position, interviewing, and hiring employees.
- Securing office space and equipment.
- Creating and paying for a benefits package.
- Creating or contracting for a payroll process.
- Training and monitoring performance of employees, including issues, such as employee apathy; inaccuracies in record-keeping; theft of products, cash, or intellectual property; and loss of customers due to poor employee engagement or customer service.
Often entrepreneurs are not proficient in financial accounting and do not understand how to manage cash flow. If they mismanage cash flow, businesses typically are caught without working capital to pay employees, vendors, landlords, suppliers, and insurance providers. Entrepreneurs need to invest time to learn about financial management and managing cash flow if they are going to be in charge of their own companies.
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The success of a company is 100 percent dependent on the entrepreneur. The entrepreneur might receive several offers of help from family and friends but rarely do those people follow through on their offers. The entrepreneur alone is taking the risk, and therefore, he or she must be seriously committed to the business, because the responsibility and risk associated with the company belong to the entrepreneur throughout the life of the business. Even when certain responsibilities are delegated to accountants or lawyers, it is still the responsibility of the business owner to understand the numbers or the contracts.
Some entrepreneurs think that taking on a partner will help with managing the business. However, it is difficult for a business to be managed by a committee, and two or more people cannot be accountable for any one particular thing. Taking on a partner does not absolve the business owner from being held responsible and accountable for the results of the business.
Entrepreneurial businesses are vulnerable to “key-person” issues. If something happens to the entrepreneur, who will solicit new customers, pay the rent, and perform other tasks needed to keep the business running? When determining whether to start a business, entrepreneurs must assess whether they can financially and emotionally withstand these key-person issues and other worst-case scenarios that are risks for any business.
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