Starting a small business is an act of courage in itself. Where many may have seen an annoying yet unfixable problem, you saw an opportunity and boldly acted on it.
That takes guts. It takes tenacity.
The uncharted territory of entrepreneurship creates an air of boundless excitement. The energy of offering real solutions is sort of a machine in perpetual motion. However, there are always hidden obstacles to even the most wonderful adventures in life.
Let’s take a look at some of the hidden drawbacks of starting a small business.
1. Serious Time Commitment
Okay, so this isn’t exactly hidden per se.
You likely already know you’ll be investing a lot of time into starting your small business. That said, it’s worth digging into and doing plenty of research to fully grasp the amount of time that goes into starting a small business. Tesla founder, Elon Musk, has reportedly pulled 120-hour weeks and still puts in what he considers to be a sustainable 80 to 90 hours a week.
While not everyone can boast the worth ethic of a genius, a lot of business owners are putting in extra hours. In fact, most business owners work more than 40 hours a week and nearly half of all business owners log 50+ hours per week. It can sound either hellish or exhilarating, depending on your perspective.
Despite this, it’s important to note that there really is no right answer to how many hours you should be putting in. Each business is different, what’s required in one field may be overkill or too little elsewhere.
All this is to say time commitment is a vital consideration of starting a small business, and one that’s hidden in plain sight.
2. Taxes, Taxes, Taxes
Taxes are already awkward and complex, and they can get even more confusing—and costly—when starting a business. This is because, on top of the personal taxes that you’re already aware of, businesses come with some of their own taxes entirely.
For starters, the very business structure you choose determines your taxes. Sole proprietorships, limited liability corporations, and S or C corporations all have different tax considerations.
You’ve also got your standard income tax. While everyone pays a federal income tax, state income tax isn’t something every state levies. Another couple of obvious ones are the sales tax you collect on selling the goods or services you offer, as well as the property tax if it applies.
Self-employment tax is a thing as well! Yes indeed, you have a tax just for being self-employed, however, it’s for a good reason. This fills the role of an employer, who would otherwise withhold Social Security and Medicare taxes for you.
Payroll taxes are similar to the self-employment tax in terms of the end goal. The difference is that they’re filed on behalf of your employees and go toward financing things like Social Security and Medicare as well.
It’s not all money going out, though. As a small business, there are plenty of deductions you can make in the pursuit of your entrepreneurial dreams.
3. The (Seemingly Endless) Fees
Aside from the taxes, the fees associated with your business ownership can sneak up on you from the beginning.
These start right off the bat with the business structure like before. No matter which type of entity you choose, there are fees associated with incorporation, in addition to those tax implications down the road.
Depending on where you are and what industry you’re in, there may be license fees. Most small businesses need a combination of permits and licenses from both state and federal agencies. These requirements and their associated fees vary based on your business.
Then, you have your more day-to-day fees to think about and account for. These can be stealthy and come in the form of things like legal fees, payroll, utilities, rent, etc. If you’re accepting credit cards for whatever you’re selling, there are the associated credit card processing fees.
Make sure you do the research and are budgeting appropriately to avoid any surprises.
Turning Negatives into Positives
There are many hidden drawbacks when starting a small business. Consequently, there will be setbacks too, those come with the territory. What matters is how you react and persevere through all of them. Luckily, the best way to not feel blindsided by things like taxes, fees, and time “lost” is to know what’s coming before it arrives.
Learn as much as you can about all the moving parts of your business. Have in-depth conversations with all the vendors, service providers, etc. you work with so you understand exactly where your money is going and what you’re getting.
Keep at it, as the rewards of entrepreneurship are worth the investment.