Do You Need To Register Your Business As A Sole Proprietor?

It'south common knowledge that over 70% of U.S. businesses are owned and operated by sole proprietors or sole traders. Many entrepreneurs love sole proprietorships considering of the buying they have over business organisation decisions and revenue and how easy and price-effective they are to set up up.

So, what'due south the depression-downwardly on sole proprietorships, and how practise you lot start 1? I've got an like shooting fish in a barrel guide for you below. Earlier you kickoff a concern, nonetheless, information technology's of import to have a business plan. Here's an easy-to-use business concern plan template to begin.

Now that y'all accept the tools to create a business plan, let's go over the definition of a sole proprietor and the types of sole proprietorships ane would typically launch.

What's a Sole Proprietor?

A sole proprietor has complete control over the revenue and operations of their business. Even so, the sole proprietor is besides personally responsible for all debts, lawsuits, and taxes their company accrues. So, if their business is sued, personal assets like their dwelling house, credit score, and savings are unprotected.

Types of Sole Proprietorships

A sole proprietor may operate as an independent contractor (a freelancer), a business possessor, 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 take the freedom to cull which clients they accept on, only they are often
subject to the processes and methods that the client requires.
Business Possessor: Business organization owners tin besides be self-employed sole proprietors, only different the contractor, there is much more autonomy in how the work is completed for clients, and the operation itself may even be more than circuitous with employees and/or intellectual property.
Franchisee: Franchise owners may also be sole proprietors. The franchisee benefits from the guidance, make, business model, etc. in commutation for royalties paid to the franchisor.

Sole Proprietorship Business Examples

Before starting a sole proprietorship, y'all should first choose the kind of business you'll found.

Because they're free and easy to start, sole proprietorships are a bang-up choice for people who want to turn their side hustles into something a little more serious — and lucrative. A diversity of businesses are operated as sole proprietorships.

Here are some mutual examples of sole proprietorships:

1. Web Developer

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

ii. Digital Marketer

Digital marketers do annihilation from managing a brand's social media accounts to improving a brand's SEO. Be sure to specialize rather than offering all marketing services.

3. Virtual Banana

Business concern owners are busy — but they don't want to hire an office banana, especially because nearly tasks tin can exist done online. Enter the virtual assistant. As a sole proprietor running a virtual assistant business organization, y'all'd handle tasks such as accounting and database entering for other business organisation owners.

iv. Daycare Operator

Daycare operators run minor, affordable daycare facilities for parents who tin't beget expensive solar day schools or a defended nanny. A groundwork educational activity would be helpful earlier creating a daycare business concern. You could, alternatively, institute a canis familiaris daycare, or a daycare for the elderly.

five. Freelance Graphic Designer

Graphic designers create all the beautiful things: landing pages, brochures, flyers, and social media ads. As in with digital marketing, you should specialize in either digital or impress graphic design, and target certain industries that interest you. Creating a imprint for a hair salon would be much different than creating ane for an engineering business firm. You'll demand a graphic design portfolio.

half dozen. Information technology Consultant or Computer/IT Specialist

Have you ever come across IT problems? So exercise endless businesses. As an IT consultant running your ain business, you would offer IT troubleshooting services to other companies, resolving issues with both the visitor's hardware and software solutions. Exist open up to traveling for this blazon of sole proprietor business.

7. Freelance Writer

As a freelance writer with a sole proprietorship, you would target brands that need content written for them. These may include non-fiction manufactures, news articles, blog posts, website pages, and social media ads. Every bit with digital marketing and graphic pattern, consider specializing in 1 writing form.

8. Freelance Copyeditor

Freelance copyeditors edit someone else's writing for clarity, concision, and effectiveness. They can proofread someone else's work for small errors and typos, but will focus more on menstruum and cohesion of ideas.

You can either go into fiction or nonfiction copyediting. Alternatively, you can get a copyeditor specifically for websites and blogs.

9. Fitness Jitney

Fettle coaching is a great pick if you lot have a passion for fitness. This blazon of sole proprietor typically targets gym goers — or those who'd like to start — to aid them achieve their fitness goals through a customized program. A degree in exercise science would be beneficial, as well as a certification in fitness coaching.

10. Housekeeper

Housekeepers make clean houses with more thoroughness than a decorated homeowner would. Tasks include mopping, sweeping, taking out the trash, washing dishes, and doing laundry. For optimal success equally a sole proprietor, yous should target a small geographical expanse to pitch your housekeeping services.

11. Landscaper

Landscapers mow lawns, trim bushes, cheque the soil'due south health, and do everything related to backyard and front yard maintenance. You lot can offer something unproblematic, such equally lawn mowing, and slowly add together more services as you gain more advanced landcare knowledge.

12. Caterer

Similar cooking? So a catering sole proprietorship may be for yous. Caterers cook big amounts of food for other people'southward events and typically have care of commitment and setup. Instagram is a great platform to spread the give-and-take well-nigh your business.

thirteen. Bakery

An alternative sole proprietorship for those who enjoy cooking would be a baking business. You can either specialize in sweets or savory appurtenances, or offer a mixture of both. While we often associate bakers with brick-and-mortar bakeries, you can operate this business organization out of your abode and conform local pickups.

14. Auditor

Equally a freelance auditor, you would work with small concern owners and inspect their inflow and outflow of cash. Exist sure to be adept in at least one bookkeeping software, such as QuickBooks or FreshBooks.

xv. Freelance Non-Fiction Book Editor

Non-fiction book editors typically review highly technical or specialized material for catamenia, accuracy, and logic. These editors are different from other types considering they exclusively specialize in manuscript-length works and have an avant-garde degree in the topic they specialize in.

sixteen. Tax Preparer

Tax preparers target individuals who find taxation return documents inaccessible and difficult 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 preparation is all you demand.

17. Document Assistant

Certificate aid is in a similar vein to revenue enhancement preparation. You lot would help individuals fill out highly complicated forms — such as immigration applications, visa applications, and unemployment claims — and potentially submit them on your client's behalf. A proficiency in another language would exist beneficial, as those who need assistance are typically non-English language speakers.

xviii. Resume and Cover Alphabetic character Writer

Resume and encompass letter writers serve those who have a disparate collection of job descriptions, roles, and skills. They so plow the information into an effective resume. A background in writing would be beneficial if you programme to launch this type of sole proprietorship.

19. Event Planner

As a sole proprietor with an outcome planning business organization, you would handle all facets of the event planning procedure, including finding a venue, caterer, decorator, DJ, and result furniture supplier. You'll typically handle part of the effect setup as well. One specially lucrative specialization is wedding effect planning.

20. Lensman

Freelance photographers accept photos and video footage of almost annihilation that clients want to capture. As with most business concern types on this listing, you lot should specialize. A corporate photographer takes photos of a company's staff; a wedding lensman takes photos of a nuptials in an artful way; a maternity photographer takes maternity shoots. These three require different skill sets, so cull the one that all-time matches your groundwork.

21. Standardized Test Tutor

As a standardized test tutor, yous would motorbus high school and college students to meliorate their score in the SAT, Deed, GRE, GMAT, or LSAT standardized tests. You should specialize in one or two tests and advertise the high score y'all received on your website. A background in education would be helpful.

22. Translator

You can start a translation concern if y'all have advanced or native proficiency in a linguistic communication other than English. Businesses, churches, and schools demand translators to communicate with a non-English-speaking client or grouping. You can beginning this type of business organisation without a degree, only a certification would be benign.

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 capital, and a perceived lack of professionalism are a few pitfalls sole proprietors must navigate.

Still, the potential financial rewards could be more than worth the run a risk — especially if you plan thoroughly earlier launching a new business and weigh the benefits and disadvantages.

Beneath, we'll wait at the pros and cons in more particular.

Sole Proprietorship Pros

Total decision-making potency
Piece of cake to set (No country registry necessary)
Gratuitous to start (Other fees apply, merely you lot won't pay the $thou average price of starting an LLC)
Uncomplicated taxation filing
Low tax rates
Balance sheets not required past the IRS
Full control over revenue

And hither are a few of the disadvantages to structuring your business organization equally a sole proprietorship:

Sole Proprietorship Cons

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

If you lot've confirmed that y'all desire to start a sole proprietorship, let's go over the essential steps you must have earlier starting this type of business.

Stride 1: Ensure a sole proprietorship is right for you lot.

Beginning, is starting a sole proprietorship right for y'all? Or should you launch another type of business?

Choosing the right concern construction is fundamental to your venture's success. As the SBA points out, "The concern structure you choose influences everything from day-to-day 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 tin structure your business organisation. While sole proprietorships andLLCs are ii of the most common concern structures, there are key differences between them.

Sole Proprietorship vs. LLC

A limited liability corporation (LLC) provides the concern possessor liability protection and taxation advantages, while sole proprietors bear personal liability for their business. Additionally, an LLC can be owned by investors, while a sole proprietorship is usually owned and managed by an individual.

Once you've determined a sole proprietorship is correct for you and your business organization, it's 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 Small Business concern Evolution Middle to understand the steps your land, city, or canton crave in order for you to operate your business legally.

Step iii: Choose a proper name

Choosing a proper name is the fun part — researching whether or not it'south taken and trademarked is where things can become difficult. Search the United States Patent and Trademark Office (USPTO) to learn whether your chosen proper noun has been trademarked. If it hasn't, consider filing your name with the USPTO to go a trademark on information technology, so no one else can operate nether that name.

Footstep 4: Register your DBA.

As a sole proprietor, the legal name of your business is your personal name. However, if you lot want to operate under a different name, say, "Global Business Consulting Services," you'd want to annals a fictitious or "doing business organisation as" name, also known as a DBA.

In many cases, you lot're required to dissever business organisation and personal funds. A DBA is often necessary when opening a depository financial institution account or credit menu for your business. Your state might also crave follow-up steps later on registration.

Most commonly, yous'll be required to publish the name you'll exist doing business nether publicly — and then provide proof of publication to your local government.

A DBA also ensures no one else in your county is doing business under the same name. Bottom line? Annals your DBA and do information technology shortly.

Step 5: Buy a domain.

One time you've picked the perfect name, it'due south time to go afterwards a domain. For an like shooting fish in a barrel client experience, your domain name should exist the same every bit your business organization. Search to meet if the domain yous want is taken using these ICANN-accredited databases. Fifty-fifty if y'all're not ready to build the website, reserve or buy your domain name and then no one else tin can.

Footstep 6: Register for a business license.

Even sole proprietorships need a business license to operate, in near cities. Don't skimp here. The fines on operating without a license can exist steep. You might also need your business concern license to open a bank account — but more on that below.

Pace 7: Check on other permits or licenses.

The fees associated with non having the correct licenses or permits tin be debilitating to a young business organisation. Be certain that you've gotten the correct federal licenses and permits and land licenses and permits. These might include:

A health department permit for preparing or serving nutrient
A federal license for transporting animals
A wellness and rubber training for opening a daycare
A certification exam to become a financial advisor
A zoning permit to operate your concern from dwelling house
Registration with the state tax authority if you take employees or collect sales taxation

Do the legwork up front and find out what licenses and permits y'all need. The fees yous'll pay during this procedure are nothing compared to the fines you'll pay if y'all oasis't filed the right paperwork.

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

If y'all operate alone, you might not demand an employee EIN and can operate and file taxes nether your social security number. Every bit presently as you hire an employee or gear up a retirement plan, however, you must file for a federal employer identification number (EIN). It's free and can be obtained online.

Footstep 9: Open a concern depository financial institution account.

It's of import to keep personal and business organisation expenses divide when running a sole proprietorship (particularly if you get audited). Opening a business bank account ensures a certain level of protection for your business funds, allows customers to pay with a credit card and brand checks payable to your business, and allows your business to build a good credit history.

You lot desire to be able to prove to the IRS you're running your business organisation to brand a profit. This ensures the losses you experience during the first few years will remain revenue enhancement deductible.

It's also wise to build a good credit history earlier starting your business concern. While credit cards can help you out in your company'south early on days when cash flow is low, the involvement adds upward quickly and can easily go overwhelming.

A personal loan is often a better option, and a good credit history is necessary for securing a loan of this type.

Pace x: Load up on insurance.

Considering 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, auto insurance, health coverage, and disability coverage, at the very least. This can go expensive, but it ensures you and your personal avails are protected from lawsuits and professional setbacks, should they arise.

Check out this SBA article to learn more virtually the coverage yous demand.

Footstep xi: Pay your taxes.

As a sole proprietor, you'll pay income revenue enhancement on all income your business nets. File your sole proprietorship incomes taxes by using Schedule C on your Class 1040 and adding the income or losses your business incurred to the other income you record.

Y'all tin use whatever business losses to showtime other sources of income, like a bacon from your day job or a spouse. But be conscientious not to stride into "hobby business" territory with the IRS. You must testify your business is not a hobby in order to lower your taxes. When your business organisation becomes assisting, it might be time to file for corporate status or go an S corporation.

Remember, because you're self-employed, your paychecks don't have proper withholdings taken out at the time you're paid. Instead, you can expect to pay quarterly estimated taxation payments, and cover the deviation or receive a refund for any shortage or overage come up revenue enhancement season.

Because of this, yous 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 proprietor is one of the biggest choices yous'll e'er make. Though the adventure is slap-up, so is the reward — and the all-time part is that you can get-go it on your own without leasing a edifice, hiring others, or requiring expensive training. With the steps I shared in this mail, you'll build a potent foundation to ensure lasting success.

Editor's notation: This post was originally published in September 2018 and has been updated for comprehensiveness.

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