Benefits and challenges of owning multiple businesses

September 15, 2022

Pros and cons of owning multiple businesses

Running several businesses can be daunting, due to the time and money constraints, and yet it can also be incredibly rewarding. It provides young business owners the chance to diversify and showcase their skills in several fields, or to truly master one industry. The financial gains often surpass any losses that might happen. However, it is vital to consider all the possible obstacles one might encounter when running multiple businesses.

What are the types of business ownership?

Before making the decision to run multiple businesses it is helpful to learn more about the types of ownership there are. Most business people opt for sole proprietorship, but often when running many businesses at the same time, a partnership would work better. Distinguish between LLP partnerships, that are basically legal entities that provide simple and pass-through taxation, with a limited liability for the partners; and LLC partnerships that allow you to retain sole proprietorship, while still limiting legal and financial liability, making them a popular choice for small businesses. Consider the type of ownership structure before starting to run several businesses at the same time.

Benefits of owning multiple businesses

What is called a serial entrepreneur refers to someone who prefers to run more than one company at the same time. These types of business people are fully committed to their companies. Nonetheless, some business owners often prefer working on one company over another, and thus allocate more time to one rather than all. Still, they reap more benefits from owning multiple businesses than one.

More income

Every entrepreneur wants to make more profit, but at the same time save some money. If you are trying to achieve both, then running multiple businesses might be challenging. However, according to the Harvard Business Review, people who are successfully running more companies, make more money on average than those who run only one. Think of it as having multiple sources of income or a form of a long-term investment.

Economy of scale

What economists call economies of scale are the cost advantages that enterprises obtain due to their scale of operation. They can be measured by the amount of output produced per unit of time. To make things clearer let’s take a look at what one needs when starting a business. For starters, one needs to register the business, hire employees, secure warehouses and/or equipment, etc. All of this costs a lot of money and time. If we consider the economy of scale principle we realize that running several businesses at the same time might be more cost-effective than running only one.

When scaling your operations, you can add more revenue streams by having multiple companies. Not only that, but you also share a lot of the expenses among the companies. The main principle of operation is quite obvious: more investments mean more profit. Consider expanding your business across several companies and see how it goes.

Diversification

Running multiple companies is really an invitation to diversification. Not only can you diversify your products, but also the type of industries you work in. You can have multiple companies in the same industry, or you can take the challenge and expand from technology to healthcare using only your creativity and desire for expansion.

Diversification minimizes risk, because if one business fails, there is always another one that thrives. Having companies in the same industry might pose a challenge when a whole industry is hit, like some during the COVID pandemic, but having diverse businesses then becomes a safety net. Having a different set of people working on different projects is another advantage of diversification. When a problem arises in one of your companies, an IT expert from your software company may provide a quick solution. Think about creating or updating your databases, or even creating a giant database for all your companies.

Diversity needs to be embraced, and not feared. Although it can be risky running different companies at the same time, consider it a pool of opportunities, where everything is bound by the entrepreneur – they are what keeps all the diversity together.

Challenges of owning multiple businesses

Every business owner needs to consider the real obstacles posed by having more companies than one. Although the income might increase, many new costs will arise. Likewise, time is always a challenge, as well as the increased paperwork.

Time management

When running a business the main thing that holds all operations together is proper time management. Only a good strategy enables better time management. The right scheduling enables proper time management. You can start by relying on your assistants or simply using online calendars to organize your time. 

Secondly, try to have all of your companies located in the same location. Online remote work makes this easier, as all employees are virtually in the same place. Thirdly and very importantly, you have to trust your employees to do their tasks timely and diligently. Vet them and choose them wisely before committing to more employees across different locations and companies. The right employee assigned to the right task will save you a lot of time and energy. It is better to spend time choosing the fitting employee, instead of wasting time correcting mistakes after an employee proves to be a bad fit for a task.

Financial costs

Despite possible, and very likely financial gains, one cannot underestimate the costs of running a business. From basic utilities cost to salaries, these are just some of the costs every business has to deal with:

  • Office space 
  • Equipment and furniture
  • Salaried employees
  • Technological supplies
  • Insurance, license or permit fees
  • Advertising or promotions
  • Business plan costs
  • IT services

Now take all of this into consideration and multiple them by the number of businesses you own! If the costs are overwhelming, you should definitely re-evaluate the number of companies you own. Sometimes two companies is more than enough, and often too many would put too much burden on your bank account. 

Paperwork

A very logical consequence of starting multiple businesses is the increased paperwork. Multiply each company’s paperwork by the number of companies you own and you’ll drown in paperwork. Each company requires specific paperwork, including business formation papers, business licenses and tax forms. For some all of the paperwork might be too stressful and expensive.

Always check what laws apply to each of your businesses. This means that many companies might require more legal research and paperwork for the additional regulation. From safety measures to special considerations, legal documents might pile up by the time you open your business. Hire someone who can go through the paperwork and resolve any issues that might arise.

Conclusion

Owning many businesses means providing yourself with multiple streams of income and financial security, especially if one company isn’t successful. Owning numerous companies makes life exciting and gives us a chance to put our diverse skills, experiences, and interests to the test.

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