Have you ever heard the term “solopreneur”? It’s one that’s become more common as the shape of work shifts, particularly during and as we exit the COVID-19 pandemic.
In business language, a solopreneur is an entrepreneur and a one-person business. In layman’s terms, that means that one person (you) acts as your business’ CEO, employee benefits manager, customer service, creative, and legal team all wrapped into one industrious package.
While that might seem like a lot, solopreneurs have a uniquely advantageous position: they can turn their business on a dime whenever needed to create a bigger impact faster. However, with great power comes great responsibility, so before getting too deep into the startup business world, we recommend reviewing these 5 things that solopreneurs need to know, but oftentimes miss.
1. Your business entity won’t necessarily be “sole proprietorship”.
Nearly every business needs to pay taxes on its earnings. Even ones with only one person on the payroll. What those taxes look like though, as well as a number of other operational standards, depend on the type of business structure that you declare.
The IRS lists five different types of business structures: sole proprietorships, limited liability corporations (LLCs), partnerships, C corporations, and S corporations. Of these types, solopreneurs can choose to file as anything except for a partnership, but more than likely will be best fit to file either as a sole proprietorship or an LLC. The one that works best for your specific business depends on (usually) the level of legal protection you prefer your business to have against liabilities. An LLC carries added protections that a sole proprietorship won’t account for and might be a good choice for a solo endeavor in real estate, construction or repairs, food service, or financial advising. However, one-person businesses like those operated by Door Dashers, digital marketing managers, or yoga instructors would have little use for such protections.
2. Sole proprietors don’t need to register their business status with the IRS or any other government entity.
This can work for two reasons:
Individuals who own sole proprietorships pay their business taxes as part of their personal income taxes.
The sole proprietorship does not have to account for any W2 employee expenses or forms.
While some sole proprietors will still need to seek additional licenses and paperwork for operation (e.g. Health Department permits for food service purveyors) solopreneurs who choose to operate a sole proprietorship can skip the IRS business registration form.
3. Solopreneurs need to identify liabilities and growth goals early.
Many solopreneurs begin their business venture while otherwise employed at traditional 9-to-5’s or as a side-hustle passion project. While this lends them incredible flexibility, this can also lead to an occasional lapse of real business growth focus. Just as a business owner with multiple employees has a duty to provide consistent, secure employment to his or her staff members, solopreneurs owe this responsibility to themselves and their families. Outline your goals, liabilities, and growth timeline as quickly as possible into your solo endeavor with questions like:
How much in overhead costs (electric, utilities, online tool subscription fees) do you pay each month?
What expenses can you write off?
Should you be setting aside money monthly or quarterly for your end of year taxes, or can you afford to make a single bulk payment in January?
How much do you need to earn each month to take your solo business from part-time or hobbyist to full-time?
How many clients do you need to reach that level of income?
How will you reach new clients and/or continue to scale up existing ones over one year? Over five?
This Q and A process can feel overwhelming, but it’s a critical determiner of whether or not your business will succeed.
4. Look for flexible contractors and service partners to help you affordably mature your business.
Ideally, the step above will lead you to uncover at what point you should and will be able to hire contractors or bring on service partners who can help your solo business grow beyond the startup phase.
Some partners and contractors (like Remote Accounting Experts) may offer special discounted rates for solopreneurs. Some might be willing to exchange in-kind services with you. Either opportunity will significantly help you take your business to the next level while keeping your bottom line costs manageable.
5. You already know your best new business opportunities.
Even though you’re starting your solopreneur journey alone, you have a powerful network around you that you can use to find customers. Even if your immediate contacts don’t have a need for the type of service you offer, they likely know someone who does and can get you an introduction and a referral. And more people trust referrals from their personal connections than from traditional advertising or online cold prospecting – 83% of all people to be exact.
As you start out and continue to scale, keep your personal network in the know about your solopreneur journey and services. They may know someone who could be a new customer either now or in the future.
While these are the top five things that all solopreneurs need to know, you’ll no doubt discover many more lessons as you continue on your entrepreneurial journey. After all, your business is yours to build as you see fit.
That flexibility advantage allows solopreneurs like you to operate at maximum efficiency, but only if you’re laser-focused on the service you deliver and customers you serve. That’s why solopreneurs especially benefit from having business functions like bookkeeping, legal, and administrative set as much on autopilot as possible. The less time they spend worrying about those functions, the more time, effort, and innovation that they’re able to invest into their business’ actual mission, products, and service components. For accounting, we recommend consulting with a service like RAE that has experience working with solopreneur clients launching and growing their business.