Updated: Jan 4, 2022
Being an entrepreneur can be a difficult job. You need to know a variety of thinks before entering the business market. It is important to keep your knowledge updated to fare well in any market. Here, we will focus on the inherent difference between owning and managing a business. We will talk about both the pros and the cons.
Owning a Business
You cannot be a business owner until both these aspects occur: you are taking the business's monetary risk and you are making decisions for the business. Risk-taking and decision-making are what make an entrepreneur the owner of any business.
There are numerous benefits of owning a business. First, you reign freely. You have the authority to make all sorts of different decisions for the business. This aspect includes both expansion decisions and the decision to sell or close the business down, should the need ever arise. Additionally, the profits are kept by the business owner. As the individual carrying the bulk of the financial risk attached to the business, they to reap any monetary rewards for its success. In the event that the business grows over time, the value of the owner’s investment increases.
None the less, there are some drawbacks to being a business owner as well. Starting with the financial risk to funds invested, if the business fails, naturally you lose your investment and possibly the funds of other investors, depending on the structure of the business. Secondly, the brunt of legal liabilities are carried by the owners, not the managers of the establishment ( subject to initial business set up options). The owner takes accountability for the business’s actions. For example, if poor working practices or conditions in your business cause a worker to face any issue or injury, the business owner will be subject to the repercaussions of such an error.
Managing a business
While managing a business also involves decision-making, it does not involve the monetary risk-taking aspect for the individual whose sole responsibility is managing the business. A manager is someone who is tasked with making the day to day decisions on behalf of a business owner. In other words, the manager provides paid labor. In some cases, especially small businesses, the entrepreneur doubles up as the manager as well. In other cases, there is a divorce between ownership and control: the manager and owner are different.
The benefit of managing a business is that you get a fixed return for the work you perform. Even if the business is making a loss despite no error on the part of management, it is still legally obligated compensate you for your time a manager. Additionally, you do not take accountability for anything within the business other than the actions taken within the remits of your role. As the business grows, it is often the person managing the business that receives the credit it success. Another benefit is that your finances are relatively safe: a loss for the business does not generally get passed on to you, except in extreme cases where it can result in job losses or business closure.
On the other hand, there are certain drawbacks of managing a business as well. Your payment for the work is usually fixed. Thus, if the business makes exceptional profits due to your hard work, it is likely that you may not get any extra benefits or payment as a reward, unless the the terms of employment included a bonus structure. The business owner has the final say on what happens and in some cases, it can become extremely frustrating when a trained or specialist manager has to give up their idea due to the owner's unwillingless to budge.
As shown above, there are numerous benefits and drawbacks to becoming the owner or manager of a business. However, the final decision usually comes to the individuals need for independence, control and the ability or inability to take financial risk. Let us know if this article was able to help you make the right decision for your business.
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