Home-Based Business Disadvantages

It all sounds so good, doesn't it? But home-based businesses come with some unique disadvantages, too. If you're unprepared, they could not only give you a nasty shock, but could even bring down the business.

Financial Risk

No one leaves a paid job to start a home-based business intending to fail — but failure does happen. You need to ask yourself if you can handle the worst-case financial situation. Imagine a bad debt scenario, where your major client declares bankruptcy, and the check that you're expecting for work you've already done disappears. Can you handle the cash flow problem? If you can't, can you afford to lose the capital you've invested in the business? If the answer is still no, you need to think about a lower risk strategy.

It's estimated that up to 50 percent of small businesses will close within their first five years. The things that often trip them up? Insufficient financing, whether in the form of capital, credit, or sales; poor decision making on issues like managing inventory, accounts receivable and clients; and simply not realizing how tough business ownership can be.

Lack of Benefits

You also need to assess how much your current benefits plan at work (assuming that you have one) is worth to you. When you own your own business, many of those employer costs — health insurance, retirement plan contributions, paid vacation time, subsidized daycare, etc. — become yours. Can you handle those costs?

The Possibility of Burnout

You might think that your current boss expects a lot of overtime from you, but that will be nothing once you're facing half a dozen clients, all of whom want their project completed yesterday. Burnout is a very real possibility with those who are self-employed.

You become particularly vulnerable to burnout because most home-based business owners are wearing all kinds of hats at the same time. You're responsible for finding clients, selling them on the product or service, delivering what you've promised, billing them, collecting the check, and handling the accounting that comes with it. At various times, you'll be a computer technician, accountant, file clerk, debt chaser, and employee counselor. This isn't a problem, as long as you relish that kind of juggling act.

The Isolation Factor

If you're someone who needs people around you all the time in order to function most effectively, how will you handle being alone in the office all day, every day? Will client meetings, e-mail, and business association meetings fill the void for you, or will you find yourself inventing excuses to leave the office (thus putting yourself behind)?

Family Fallout

Even the most supportive of families can become frustrated if you're working so hard that you never leave the office, or if customer visits to the house begin to be intrusive. Similarly, if your spouse or children don't understand the boundaries of the home office, you may become frustrated when they seek you out even though you're trying to work.

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