I write a lot about personal finance. I hear a lot about how different employers are handling the current economic crunch and, lately, what I’ve been hearing makes me pretty uncomfortable about working for a long list of companies. Some employers are slashing benefits — effectively cutting their employees’ salaries while inflation reduces their buying power.

I want to suggest entrepreneurship as an alternative, but I realize that it isn’t a great option for everyone. I’ve been putting together a list of pros and cons in an effort to decide whether starting up a business is really a good idea for some people, especially in the middle of ongoing financial problems. I’ve tried to stick to financial and business issues  while it’s nice that many small business owners can spend more time with their families, I don’t think that’s the biggest issue for many folks considering entrepreneurship right now.

The Pros

  1. If your employer is letting you go, offering early retirement or using another euphemism for firing you, it may be hard to find another job immediately. Being in business for yourself allows you to immediately start working on making money, rather than proofreading your resume.
  2. Without the middleman (a.k.a. your employer) you can charge significantly more for your services — along the lines of what your employer was charging for your work.
  3. You don’t have to go whole hog into running your own business. You can try out your business on a part-time, evenings and weekends, basis while still working your current job.
  4. It can be easier to pick up overtime if you no longer have to get your manager to sign off on it. If you run your own business, overtime is a matter of finding another client or customer.
  5. The cost of working at home is much lower than for your employer: you don’t have to pay to commute, you can eat inexpensively in your own kitchen and you only have to meet a dress code when you’ll actually be seeing a client. And, while this isn’t particularly noble, you can avoid the constant birthday parties, baby showers and other office events that constantly drain your time and your wallet.
  6. Just about all of the expenses associated with your business are tax deductible. Running your own business can make your tax burden significantly lower — and a surprising number of things are considered business expenses, like conference registrations.

The Cons

  1. While getting health insurance without an employer providing it isn’t impossible, it can be pretty difficult — especially if you actually need. Pre-existing conditions can make it absolutely impossible to get health insurance on your own.
  2. With a job, if you aren’t quite on the ball one week, you still get paid. But if you fumble on your own business, you can wind up losing money. Even if you have a contract, sometimes things can go very wrong. An employer absorbs those problems, but can you do that if you’re on your own?
  3. There are some great jobs that simply aren’t possible to do in a small business that you’re just starting yourself. If you have one of those jobs and you like it, why mess with a good thing?
  4. It’s all well and good to jump off the deep end if no one’s depending on your earnings. But if you have a family or other dependents, you have to be absolutely sure before you strike out on your own.
  5. You have to buy your own equipment when you run your own business: no more company laptop — or printing out your personal stuff at work. A computer, a printer, maybe even a fax machine: you’ll have to buy what ever you need for your home office.
  6. There’s no such thing as vacation time or sick leave when you run your own business. You can certainly take time off when you need to — after all, you’re the boss — but you just don’t get paid when you’re not working.
  7. While the flexibility of working for yourself can be nice, more and more employers are offering flex time and telecommuting options. You can have a lot of the benefits of working for yourself without having to give up a regular salary.

My Conclusion

Freelancing, consulting, and running your own business isn’t for everyone. There’s a certain amount of security in working for an employer, even if that employer is considering cutting costs with little tricks like suspending 401(k) benefits. That said, if you’re comfortable with the risks, I think there are a lot of opportunities right now: even big companies are turning to freelancers and consultants to handle the workloads of those employees who suffered under a cost-saving measure. Either choice requires a lot of careful consideration and shouldn’t be made lightly.

There are plenty of situations that can negate the cons I listed, as well as the pros. I mentioned that there’s no such thing as paid vacation if you run your own business — you can get around that negative fairly easily if you concentrate on building passive income. A lot depends on your field, as well as whether you have the self-discipline to run your own company. Before you make your decision, research all your options. You might even consider doing a test run: with a lot of businesses, you can get a head start on things even while you’re still gainfully employed.

Do you have any pros or cons to add? Please leave them in the comments.

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