Setting Up An SME – Pros And Cons

When a stuttering economy throws up a challenging and sparse employment market, where job security takes a pummeling and wages remain stagnant – an increasing number of people naturally look towards setting up their own small business. In this article we’ll explore the pros and cons of setting up an SME, and ask the key question – do the rewards justify the risks?

SME Advantages

  • Fairness. No one will treat you better in the workplace than you! A successful SME is by no means easy to run, but for those willing to invest some time and equity, the rewards can be generous and contribute towards a better long term work life balance.
  • Simple & low cost to set up. Depending on your intended niche, it’s really possible to set up a small business for buttons. While setting up, many entrepreneurs opt to save money by working from home and doing the basics themselves until the business is strong enough to afford office space and employees. Additionally, the internet has meant that even one man bands can create a big corporation feel through clever website development and automation.
  • Tax efficiency. As an employee, we’re bound to pay taxes at set rates as determined by HMRC. SME owners have far greater scope to employ legitimate tax efficiency strategies. For a start, business related expenses can be written off against profit in a way that employees are not able to, and payments may be made partially or entirely via dividends which contribute to a more efficient tax saving strategy.
  • Create a thriving brand that can be sold for a giant payday. Smart entrepreneurs understand that generating a profitable business that pays a wage is only one part of the business development blueprint. Unlike employees who exchange time for money, SME owners get more than a wage – they are shareholders of a business that can be sold off in the future to create a giant payday.

That’s all well and good, but these advantages must be tempered with some of the challenges SME owners face when creating their new business:

  • Risk. A startling percentage of startups and SMEs go under within a year of setting up. There is an intense risk attached with SME creation, and the potential business owner must understand that if their business fails to take off, they are likely to lose their entire personal investment in the venture.
  • Undercapitalization. Lack of funds or insufficient cashflow is often spouted as a common reason for business failure. New ventures can take a while to root and embed within a hostile and smirking business landscape – while you go about securing contracts and building a client base, there are often sapping bills to pay. All too often, the former fails to match the latter, and if back up financing options are not available even a promising new business can end up as a tragic government statistic.
  • Inability to build brand USP quickly enough. If you set up an independent cafe in a high street that’s already littered with a Starbucks and Costa – why would people choose your brand over a more established one? Branding a business can be a slow burning gig, and an expensive one at that.

Ultimately, setting up your own SME can be one of the most rewarding and exciting ventures you’ll ever undertake. While the challenges will always be there, for those with a robust work ethic and a bit of street smarts, the pros should outweigh the cons – and by quite a distance.