Four types of entrepreneurship you need to know about when starting a business

• Update:2023/11/14

Along with the establishment of new lifestyles, we are also entering a period of change in the way we think about working, including the promotion of remote work. Many people may take this opportunity to consider starting a business.

The term “entrepreneurship” can be categorized in various ways depending on one’s point of view. In this article, we will explain the differences between typical types of entrepreneurship, focusing on “entrepreneurial style, location of startup, type of business and business category, and financing.

If you are interested in starting a business, please use this article as a reference in preparing for starting your own business.

Sole proprietorship or corporation?

Entrepreneurship can be broadly classified into two categories: starting activities as a sole proprietor or establishing a company as a corporation.

Advantages and disadvantages of sole proprietorship

Sole proprietorships have a simple opening procedure, do not require much initial cost, and can be started immediately. In most cases, there are significant tax advantages up to a certain level of income.

The disadvantages are that the degree of social trust is lower than that of a corporation, and there are limitations on the scope of expenses that can be covered. The higher the profit, the higher the income tax rate.

Advantages and disadvantages of the corporation

Corporations have a high degree of social trust, a wide range of expenses, and relative flexibility. If income exceeds a certain level, tax savings can be significant.

However, there are many procedures to start a business, such as registration, which are costly and time-consuming. Accounting and personnel management are also more complicated than for a sole proprietorship. An alternative is to start as a sole proprietorship and incorporate as soon as you are sure that you can continue your business.

There is an option for company employees to start their own business on the side

In this era of diversity acceptance, corporate values regarding employees’ side hustles are undergoing a period of change, and an increasing number of companies are allowing employees to work side hustles while still employed by the organization.

However, regulations concerning side jobs vary from company to company. Check employment regulations carefully, and if there are any unclear points, ask the company to clarify them to avoid any problems.

Where to start a business

There are many different options for where to start a business, and you have the freedom to choose. Understand the advantages and disadvantages of each location and choose the perfect location for your start-up business.

Home-based entrepreneurship recommended for sole proprietors

If you are a sole proprietor, we recommend using your home as your office. The initial cost is low, and it is easy to balance work with housework, childcare, and nursing care.

However, it is important to note that it is difficult to distinguish between work and private life, which can lead to stress.

Recommended serviced office for startups

In general, a leased office space is contracted with the owner and monthly rent is paid for the use of a single space. In addition, users must provide their own office furniture and equipment, such as desks and copy machines, so the initial cost is quite high.

In contrast, in a rental office, the user contracts for a section of space. The contracted space is your own, and you can use it just as you would a regular office. Most serviced offices are furnished with office furniture. It is not uncommon to find offices with shared meeting rooms, lounges, copy machines, etc.

For more information on serviced offices, please see the following article.

Easy to start a business in a rural area

With remote work becoming more popular and online meetings and online customer service becoming more common, the disadvantages of starting a business in a rural area are on the decline. Depending on the nature and scale of the business, it is easy to start a business in a rural area and expect to reduce fixed costs through significant savings in rent and other expenses.

Even those who find it difficult to continue working due to childcare or nursing care may be able to balance work and family life by starting a business in a rural area or from home.

Type of business or type of business to be started

No matter what type of business or industry you choose, it is important that you meet the following conditions for profitability.

Profitable conditions

・Market needs
Whether there are stable needs over the long term, including current visible needs as well as latent needs.

・Profit Margin
Profit margin is the ratio of profit to sales or selling price, and a high profit margin is the key to business success.
The profit margin is calculated by the following formula.

Profit Margin (%) = Net Profit / Sales x 100
Net profit = Sales – Cost of sales – Expenses

A common trend is that businesses with high profit margins have low costs and expenses.

・Initial Cost
A business style with a low initial investment can generate profits early and lead to a successful business. For example, a business with an initial cost of 5 million yen at the time of start-up would take 5 years to complete repayment if the annual repayment to financial institutions is 1 million yen. In this regard, a business with an initial investment of 0 yen can leave a profit from the first year.

・Availability of Inventory
Businesses that require inventory have a high initial cost for purchasing and are at risk of losing inventory due to changes in market needs or other reasons. Businesses that require as little inventory as possible are more likely to be safe.

・Availability of stores
To increase profit margins, fixed costs must be reduced. The largest fixed cost tends to be storefront expenses.

In many cases, if a business is possible without a store, the business will be able to continue even if sales drop sharply due to unforeseen circumstances, such as changes in market conditions or natural disasters.

Profitable industries and business types

・Online School
Courses and lessons conducted remotely via the Internet are a hot business category as demand for nest eggs grows. The appeal of this type of business is that it allows students to start their own businesses by utilizing their hobbies and areas of expertise. Unlike face-to-face classes, online schools have the potential to attract students from all over the world.

・Consulting
Consulting is a business that provides research, analysis, and advice on the business conditions and operations of companies and other entities.

・Online Store
You can start a business without a store and without incurring fixed monthly expenses such as rent, utilities, and labor costs. Online customer service is also possible with the use of tools.

For more information on the types of businesses and conditions that make it easy to start a successful business, please see the following article.

Type of financing

In addition to self-financing, the following financing methods may be used to finance a start-up.

Borrowing and financing from financial institutions

Since there is no track record, lenders can only make decisions based on projections. The key to receiving a loan is a compelling business description and a clear plan for using and repaying funds. Prepare a business plan after preparing personal funds and consult with financial institutions.

Public subsidies and grants

Subsidies and grants provided by the national government and local governments, which are financed by public funds, are also available under certain conditions.

While loans from financial institutions must be repaid, grants and subsidies are not repaid in principle, reducing the burden of starting a business. In many cases, grants can be provided as long as the requirements are met. On the other hand, subsidies have a budget and a cap on the number of grants, and grants are determined by lottery.

Venture capital investment

Venture capital firms invest in unlisted companies with high growth potential. Venture capital firms make a profit from the sale of shares and businesses of the companies in which they invest.

Although it is possible to raise funds without collateral, it is necessary to follow the management policies of the venture capital firm, and the burden on the recipient of the investment, such as preparing for listing, can be significant.

Summary

Entrepreneurial styles are broadly classified into sole proprietorships and corporations, and some companies allow side businesses while still being enrolled in the company. As lifestyles change, it is becoming easier to start a business in rural areas. For office space, we recommend starting a business from home with low initial costs or renting an office with low fixed costs.

When starting a business, examine the conditions and types of businesses that are likely to be profitable, and plan to raise funds other than your own. As long as you are prepared and plan accordingly, it is not difficult to start a successful business. We encourage you to give it a try.