Sole Proprietorship 101: The Easy Guide to Setting One Up

A sole proprietorship is considered one of the easiest types of businesses to start. Unlike corporations or LLC ’ south, you don ’ t have to register with the state. however, you must acquire allow permits and licenses to operate legally, and you are personally liable for debts, lawsuits, or taxes your party accrues. It ’ south common cognition that over 70 % of U.S. businesses are owned and operated by exclusive proprietors or exclusive traders. many entrepreneurs love sole proprietorships because of the ownership they have over business decisions and tax income and how slowly and cost-efficient they are to set up. so, what ’ s the abject on sole proprietorships, and how do you start one ? I ’ ve got an easy lead for you below. Before you start a business, however, it ’ second important to have a clientele plan. here ’ s an easy-to-use occupation plan template to begin. now that you have the tools to create a commercial enterprise plan, let ’ s go over the definition of a sole owner and the types of exclusive proprietorships one would typically launch.

What’s a Sole Proprietor?

A exclusive owner has dispatch control condition over the gross and operations of their business. however, the sole owner is besides personally responsible for all debts, lawsuits, and taxes their company accrues. sol, if their business is sued, personal assets like their home, citation score, and savings are unprotected .

Types of Sole Proprietorships

A sole owner may operate as an independent contractor ( a mercenary ), a business owner, or a franchisee .

  • Independent Contractor: An independent contractor is a self-employed sole proprietor who takes on projects on a contract basis with clients. They have the freedom to choose which clients they take on, but they are often
    subject to the processes and methods that the client requires.
  • Business Owner: Business owners can also be self-employed sole proprietors, but unlike the contractor, there is much more autonomy in how the work is completed for clients, and the operation itself may even be more complex with employees and/or intellectual property.
  • Franchisee: Franchise owners may also be sole proprietors. The franchisee benefits from the guidance, brand, business model, etc. in exchange for royalties paid to the franchisor.

Starting a sole proprietorship?

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Sole Proprietorship Business Examples

Before starting a exclusive proprietorship, you should first choose the kind of occupation you ’ ll discover .
Because they ’ rhenium barren and easy to start, sole proprietorships are a great option for people who want to turn their side hustles into something a little more serious — and lucrative. A diverseness of businesses are operated as sole proprietorships .
here are some common examples of exclusive proprietorships :

1. Web Developer

Web developers design websites for clients using vane coding languages such as HTML, CSS, JavaScript, PHP, and jQuery. An easier entrance point into this field would be WordPress web development .

2. Digital Marketer

Digital marketers do anything from managing a trade name ’ s social media accounts to improving a post ’ s SEO. Be surely to specialize preferably than offering all marketing services .

3. Virtual Assistant

occupation owners are busy — but they don ’ metric ton want to hire an agency adjunct, particularly because most tasks can be done on-line. Enter the virtual adjunct. As a sole owner running a virtual assistant business, you ’ vitamin d cover tasks such as bookkeeping and database enter for early business owners .

4. Daycare Operator

daycare operators run small, low-cost daycare facilities for parents who can ’ thymine afford expensive day schools or a give nanny. A background education would be helpful before creating a daycare business. You could, alternatively, found a andiron daycare, or a daycare for the aged .

5. Freelance Graphic Designer

graphic designers create all the beautiful things : land pages, brochures, flyers, and social media ads. As in with digital market, you should specialize in either digital or print graphic design, and target certain industries that matter to you. Creating a banner for a hair salon would be much different than creating one for an technology fast. You ’ ll need a graphic design portfolio .

6. IT Consultant or Computer/IT Specialist

Have you ever run into IT problems ? so make countless businesses. As an IT adviser running your own business, you would offer IT troubleshooting services to early companies, resolving issues with both the company ’ sulfur hardware and software solutions. Be open to traveling for this type of sole owner business .

7. Freelance Writer

As a freelance writer with a sole proprietorship, you would target brands that need contentedness written for them. These may include non-fiction articles, news articles, web log posts, web site pages, and social media ads. As with digital market and graphic design, consider specializing in one write phase .

8. Freelance Copyeditor

freelance copyeditors edit person else ’ mho writing for clarity, conciseness, and effectiveness. They can proofread person else ’ sulfur solve for minor errors and misprint, but will focus more on stream and cohesion of ideas .
You can either go into fiction or nonfiction copyread. alternatively, you can become a copyeditor specifically for websites and blogs .

9. Fitness Coach

fitness coaching is a great choice if you have a heat for fitness. This type of sole owner typically targets gymnasium goers — or those who ’ d like to start — to help them reach their fitness goals through a custom-make program. A degree in drill skill would be beneficial, adenine well as a authentication in fitness coaching .

10. Housekeeper

Housekeepers clean houses with more thoroughness than a busy homeowner would. Tasks include pout, sweep, taking out the trash, washing dishes, and doing laundry. For optimum success as a sole owner, you should target a little geographic area to pitch your housekeep services .

11. Landscaper

Landscapers mow lawns, reduce bushes, check the dirt ’ s health, and do everything related to backyard and front yard sustenance. You can offer something childlike, such as lawn mow, and lento add more services as you gain more advanced landcare cognition .

12. Caterer

Like cooking ? then a cater sole proprietorship may be for you. Caterers cook large amounts of food for other people ’ south events and typically take manage of delivery and setup. Instagram is a capital platform to spread the parole about your business .

13. Baker

An alternate sole proprietorship for those who enjoy cooking would be a bake business. You can either specialize in sweets or savory goods, or offer a assortment of both. While we often associate bakers with brick-and-mortar bakeries, you can operate this business out of your home and arrange local pickups .

14. Accountant

As a freelance accountant, you would work with little business owners and audit their inflow and escape of cash. Be certain to be adept in at least one accounting software, such as QuickBooks or FreshBooks .

15. Freelance Non-Fiction Book Editor

Non-fiction book editors typically review highly technical or specialize material for stream, accuracy, and logic. These editors are unlike from other types because they entirely specialize in manuscript-length works and have an advanced degree in the subject they specialize in .

16. Tax Preparer

tax preparers target individuals who find tax tax return documents inaccessible and unmanageable to fill out ( been there ). This is one of the easiest sole proprietorships to launch, as there are no education requirements. A course in tax cooking is all you need .

17. Document Assistant

Document aid is in a similar vein to tax homework. You would help individuals fill out highly complicated forms — such as immigration applications, visa applications, and unemployment claims — and potentially submit them on your customer ’ sulfur behalf. A proficiency in another language would be beneficial, as those who need aid are typically non-English speakers .

18. Resume and Cover Letter Writer

Resume and cover letter writers serve those who have a disparate collection of occupation descriptions, roles, and skills. They then turn the information into an effective resume. A background in writing would be beneficial if you plan to launch this type of sole proprietorship .

19. Event Planner

As a sole owner with an consequence plan clientele, you would handle all facets of the consequence planning summons, including finding a venue, caterer, decorator, DJ, and consequence furniture supplier. You ’ ll typically cover share of the event apparatus as well. One peculiarly lucrative specialization is wedding event plan .

20. Photographer

freelance photographers take photos and video recording footage of about anything that clients want to capture. As with most business types on this list, you should specialize. A corporate photographer takes photos of a company ’ second staff ; a marriage photographer takes photos of a marry in an disingenuous way ; a motherliness photographer takes pregnancy shoots. These three require different skill sets, indeed choose the one that best matches your background .

21. Standardized Test Tutor

As a standardize trial tutor, you would coach high school and college students to improve their score in the SAT, ACT, GRE, GMAT, or LSAT standardized tests. You should specialize in one or two tests and advertise the senior high school score you received on your web site. A background in education would be helpful .

22. Translator

You can start a translation business if you have advanced or native proficiency in a terminology other than English. Businesses, churches, and schools need translators to communicate with a non-English-speaking node or group. You can start this type of business without a degree, but a documentation would be beneficial .
Woman starting a sole proprietorship and looking at the forms she has to fill out

Starting a Sole Proprietorship

sole proprietorships are strapped with big risks. Increased personal liability, difficulty raising das kapital, and a perceive lack of professionalism are a few pitfalls sole proprietors must navigate .
silent, the likely fiscal rewards could be more than worth the risk — specially if you plan thoroughly before launching a new business and weigh the benefits and disadvantages .
Below, we ’ ll look at the pros and cons in more detail .

Sole Proprietorship Pros

  • Full decision-making authority
  • Easy to set up (No state registry necessary)
  • Free to start (Other fees apply, but you won’t pay the $1000 average cost of starting an LLC)
  • Simple tax filing
  • Low tax rates
  • Balance sheets not required by the IRS
  • Full control over revenue

And hera are a few of the disadvantages to structuring your occupation as a sole proprietorship :

Sole Proprietorship Cons

  • Personal assets are at risk
  • Increased personal liability for lawsuits
  • Business bankruptcy means personal bankruptcy
  • Difficulty raising capital
  • Self-employment tax
  • Many banks require businesses to incorporate before they’ll lend money
  • Perceived lack of professionalism

If you ’ ve confirmed that you want to start a lone proprietorship, let ’ s go over the all-important steps you must take before starting this type of business .

Step 1: Ensure a sole proprietorship is right for you.

First, is starting a sole proprietorship correct for you ? Or should you launch another type of business ?
Choosing the right clientele structure is winder to your venture ’ randomness success. As the SBA points out, “ The business structure you choose influences everything from daily operations, to taxes, to how much of your personal assets are at risk. ”
Sole proprietorships, partnerships, limited liability companies ( LLCs ), corporations, and cooperatives are just a few of the ways you can structure your business. While lone proprietorships andLLCs are two of the most common clientele structures, there are key differences between them .

Sole Proprietorship vs. LLC

A limited indebtedness corporation ( LLC ) provides the commercial enterprise owner liability protective covering and tax advantages, while exclusive proprietors bear personal indebtedness for their business. additionally, an LLC can be owned by investors, while a sole proprietorship is normally owned and managed by an individual .
once you ’ ve determined a sole proprietorship is right for you and your commercial enterprise, it ’ randomness time to talk to the experts .

Step 2: Talk to your nearest Small Business Development Center.

Before you establish your sole proprietorship, reach out to your nearest humble Business Development Center to understand the steps your state, city, or county command in holy order for you to operate your business legally .

Step 3: Choose a name

Choosing a name is the fun character — researching whether or not it ’ second taken and trademarked is where things can become difficult. Search the United States Patent and Trademark Office ( USPTO ) to learn whether your choose name has been trademarked. If it hasn ’ metric ton, consider filing your appoint with the USPTO to get a hallmark on it, so no one else can operate under that appoint .

Step 4: Register your DBA.

As a sole owner, the legal name of your business is your personal name. however, if you want to operate under a different appoint, say, “ Global Business Consulting Services, ” you ’ vitamin d want to register a fabricated or “ doing business as ” appoint, besides known as a DBA .
In many cases, you ’ re required to separate business and personal funds. A DBA is much necessary when opening a bank account or credit card for your business. Your country might besides require follow-up steps after registration .
Most normally, you ’ ll be required to publish the name you ’ ll be doing business under publicly — and then provide proof of issue to your local government .
A DBA besides ensures no one else in your county is doing business under the same name. Bottom line ? Register your DBA and do it soon .

Step 5: Purchase a domain.

once you ’ ve picked the perfect name, it ’ s time to go after a world. For an easy customer have, your domain name should be the same as your commercial enterprise. search to see if the sphere you want is taken using these ICANN-accredited databases. even if you ’ re not fix to build the web site, reserve or buy your domain appoint so no matchless else can .

Step 6: Register for a business license.

evening lone proprietorships need a occupation license to operate, in most cities. Don ’ thyroxine stint hera. The fines on operate without a license can be steep. You might besides need your commercial enterprise license to open a trust account — but more on that below .

Step 7: Check on other permits or licenses.

The fees associated with not having the compensate licenses or permits can be debilitating to a young clientele. Be certain that you ’ ve gotten the correct federal licenses and permits and state licenses and permits. These might include :

  • A health department permit for preparing or serving food
  • A federal license for transporting animals
  • A health and safety training for opening a daycare
  • A certification exam to become a financial advisor
  • A zoning permit to operate your business from home
  • Registration with the state tax authority if you have employees or collect sales tax

Do the legwork up front and find out what licenses and permits you need. The fees you ’ ll pay during this process are nothing compared to the fines you ’ ll pay if you haven ’ triiodothyronine filed the right paperwork .

Step 8: Get an employee identification number (EIN).

If you operate alone, you might not need an employee EIN and can operate and file taxes under your social security system count. ampere soon as you hire an employee or set up a retirement plan, however, you must file for a federal employer recognition number ( EIN ). It ‘s absolve and can be obtained on-line .

Step 9: Open a business bank account.

It ’ second significant to keep personal and business expenses separate when running a lone proprietorship ( specially if you get audited ). Opening a business bank account ensures a sealed level of security for your business funds, allows customers to pay with a citation batting order and make checks collectible to your business, and allows your business to build a good credit history .
You want to be able to prove to the IRS you ’ rhenium running your business to make a profit. This ensures the losses you experience during the first few years will remain tax deductible .
It ’ randomness besides wise to build a good credit history before starting your clientele. While credit cards can help you out in your company ’ second early days when cash menstruation is low, the pastime adds up quickly and can well become overpower .
A personal loan is frequently a better choice, and a commodity credit rating history is necessity for securing a loan of this type .

Step 10: Load up on insurance.

Because one of the biggest risks to starting a sole proprietorship is the liability it burdens the owner with, having adequate insurance is a must .
Consider property and liability coverage, car policy, health coverage, and disability coverage, at the very least. This can get expensive, but it ensures you and your personal assets are protected from lawsuits and professional setbacks, should they arise .
Check out this small business administration article to learn more about the coverage you need .

Step 11: Pay your taxes.

As a sole owner, you ’ ll pay income tax on all income your commercial enterprise nets. File your sole proprietorship incomes taxes by using Schedule C on your form 1040 and adding the income or losses your commercial enterprise incurred to the early income you record .
You can use any business losses to offset other sources of income, like a wage from your day job or a spouse. But be careful not to step into “ hobby business ” territory with the IRS. You must prove your business is not a avocation in regulate to lower your taxes. When your business become profitable, it might be meter to file for corporate status or become an second pot .
Remember, because you ’ rhenium freelance, your paychecks don ’ t have proper withholdings taken out at the time you ’ rhenium paid. alternatively, you can expect to pay quarterly estimated tax payments, and cover the deviation or receive a refund for any deficit or overage come tax season .
Because of this, you should set aside money from each paycheck to cover those quarterly and annual expenses .

Position Your New Sole Proprietorship for Success

Starting a business as a sole owner is one of the biggest choices you ’ ll ever make. Though the risk is great, indeed is the reinforce — and the best part is that you can start it on your own without leasing a construction, hiring others, or requiring expensive trail. With the steps I shared in this mail, you ’ ll build a strong basis to ensure permanent success .
Editor ‘s bill : This post was in the first place published in September 2018 and has been updated for comprehensiveness.

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