Looking back, I’ve been a solopreneur for most of my working life. It all started with being a piano teacher when I was in high school, to running a personal training business when we lived in Arizona, to working as an independent contractor for several years for Chris Powell and Heidi Powell before becoming a salaried employee, then back to being an independent contractor for 6 months working for both Heidi Powell and Dave Hollis, and now as a freelance writer, ghostwriter, and editor.
I’ve learned quite a bit throughout this solopreneur journey, so if you’ve ever thought of starting your own small business, here are some steps you can take and things I’ve learned along the way.
But before I get started, it’s disclaimer time:
This information is for informational purposes only and is based on my personal experience. Please consult with a business attorney, tax accountant, or any other professionals as necessary for your own small business needs.
Step 1. Decide which type of business entity you’re going to use
This step is very important for tax purposes, but especially for personal asset protection and potential liability issues. Here’s a breakdown of the three types of entities and the pros and cons of each (this breakdown is not all-inclusive):
Sole proprietorship
This is the simplest business structure because it’s not considered to be “incorporated” like some of the other structures I’ll be sharing. Here are the pros and cons of sole proprietorship:
Pros:
- Affordable and simple to begin
- Freedom and flexibility since there are no regulations or guidelines to adhere to.
- Less paperwork overall, including financial paperwork.
- Fewer business fees in some cases. Although if you use a business name other than your own name, you will have to register that business name.
- You are the single owner, which makes decision making simpler.
Cons:
- No separation between your personal assets and business assets.
- No liability protection, so if your business is sued or has any type of issues—including financial issues like debt, your personal assets are at risk and can be used to meet business financial obligations. Insurance can help with this, but it’s still a risk.
- It can be more difficult to raise funds and get credit and financing for your business.
- It can be more difficult to sell your business.
- Since financial reports aren’t required, it can be more difficult to stay on top of the financial situation of your business, which can affect your bottom line and make tax time more stressful.
LLC (Limited Liability Corporation)
The businesses I’ve formed have been LLCs, and the process to create an LLC is pretty simple. There are organizations that can help you set up an LLC—for a fee, but with a little bit of time and some googling, you can easily set up your own LLC.
Pros:
- Simple to form.
- Personal assets and business assets are totally separate, so both you and your personal assets (home, cars, personal accounts, etc.) are protected from liability in most cases. While no one wants to face legal issues or bankruptcy if your business fails, if this happens, you and your assets are protected personally.
- This is a huge benefit versus a Sole Proprietorship!
- File your LLC taxes with your personal taxes.
- Not subject to corporate taxes, which are usually higher.
Cons:
- As an owner of an LLC, you’re considered to be self-employed, so you will have to pay self-employment tax contributions towards Medicare and Social Security.
Corporation
Since I’ve never started a corporation of any type, and since there are several corporation options available, I’ll only be discussing C corps since those are a pretty popular small business option.
Pros:
- Separate entity from you as an owner, offering the strongest protection for owners.
- Easier to raise capital because raising funds through stock sales is possible.
Cons:
- Higher cost to create and manage.
- Requires more extensive record keeping.
- Can potentially pay taxes twice: 1) on company profits, and 2) on dividends paid to owners and shareholders on their personal tax returns.
Step 2. Choose a name for your business
Choosing a name can be easy, or it can take a lot of thought. My first LLC was called “Fitness N’ More Personal Training, LLC” because it was solely a personal training business. My second and current LLC is simply called “Susan Kelley, LLC” because I needed to set it up to get paid for my job and I wasn’t sure what I would do with it in the future. Currently, I’m a freelance writer, ghostwriter, and editor, so this name works. Since I’m a Certified Personal Trainer and Nutrition Coach, this name could also work for anything I’d do with those certifications. Here are some things to think about:
- What is the main purpose of your business?
- Could that purpose evolve over time? If so, one option is to use your name when naming your business. Or, you can always start a second business, keeping your business names in line with each business purpose.
- Has your chosen business name already been taken in your state? It’s easy to see by doing a business name search on your state’s Secretary of State’s website. Here in Georgia, I did my initial name search on the Georgia Corporations Division page on the Secretary of State’s website.
Step 3. Register your business name
It might be a bit different for each state, so Google is your friend here. Or you can also call your Secretary of State’s office for help. In both Arizona and Georgia, where I’ve registered business names, they were always super helpful during the whole process.
Step 4. Obtain a business license
Depending on where you live, this may or may not be a requirement, so check with both your county and city, as some cities also require a business license.
Step 5. Get any necessary insurance
When I started my current LLC, I got an umbrella coverage policy added to our personal insurance as an extra insurance policy just in case. Other than that, I also have liability insurance connected to my Personal Training Certification.
Depending on your business, it might be wise to invest in some liability insurance and even look into an umbrella policy. While we hope that nothing negative legal-wise will ever happen, it’s best to be safe than sorry because you just never know 100% for sure what the future might hold.
Other forms of insurance might be beneficial depending on your business, so be sure and check with an insurance agent who specializes in business insurance just to make sure you’re well covered insurance-wise.
Step 6. Take care of the legal stuff
Depending on your business, you might need legal forms of one kind or another, so a business attorney can be a great person to add to your business team. When I was personal training, I had my attorney look over all of the forms I’d give to my clients to ensure that both my clients and myself were covered for any potential issues and/or misunderstandings. Because both can happen.
Step 7. Get ready for tax time now
No matter what type of business entity you use, you will need to pay taxes on any income, and a tax accountant can be your best friend. If you have a simple business, you can do your own taxes, but you’ll need to educate yourself as to what you can deduct as a business expense and how best to do this.
You’ll also want to be vigilant about paying any estimated taxes throughout the year so you don’t get any surprises and/or possible penalties and interest when you submit your taxes every year.
Tip: Put the estimated taxes due dates every year in your calendar with a note to send your income for that time period to your tax accountant in time to pay your taxes by the due date.
Bonus tip: While estimated taxes are sometimes called “Quarterly Taxes,” the due dates don’t follow an every 3 months quarter. I learned that the hard way.
And don’t forget to take advantage of all of the things you can deduct from your income that are business-related. Again, a tax accountant is a great resource here.
Step 8. Enjoy the soloprenuer journey!
While there are a few downsides to being a solopreneur (namely the tax situation and record keeping responsibilities), it can also offer you the freedom to pursue what you love to do, set your own schedule, take on only the clients you really want to work with, set your own pay scale, and so on, and it is kinda’ nice to be your own boss.
Have you started a small business? If so, please share any tips in a comment below.
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