Have you dreamed about making your own hours, being your own boss, and focusing on your own dreams? If so, then you’ve likely thought of creating your very own business. What exactly does it mean to be a sole proprietor? What pros and cons do you need to consider before making the big leap?
Keep reading to learn everything you need to know about becoming a sole proprietor.
What’s a Sole Proprietor?
Opening your own business is a huge deal. First, you need to learn about the types of business ownership structures. Here are a few ways to organize a business:
- Sole proprietorship
- Limited partnership
- Limited liability company
- Non-profit corporation
So, what is sole proprietorship? This type of business means a single person owns the whole business. That means the business is inseparable from the owner. It also means the owner holds all legal liability for the entity.
Advantages of a Proprietorship
It’s easy to imagine working on your computer while sipping a mimosa on the beach. But, how realistic is this proprietorship vision? What perks come along with being a sole proprietor?
Here’s a list of some of the best advantages of starting a business:
- Simple and inexpensive to form
- You are your own boss
- You have total control over the business
- Lowest tax rate of all business entities
- Set your own hours
- Own all profits
- Work from home or anywhere with WiFi
As with everything, these incredible benefits do come at a cost. Get details about these downsides below.
Disadvantages of Owning Your Own Business
Owning a proprietorship means that you alone are liable for the business. Liability stems to all legal aspects including paperwork, tax considerations, and potential debts.
You’re also liable for any negative action taken by an employee of your business.
So, the biggest disadvantage of being a sole proprietor is this liability. Prepare to spend a significant amount of time focused on protecting yourself. That means:
- You’ll need to prepare all the legal business contracts and paperwork yourself
- You need to get a state, county, and city business license
- Apply for an employer identification number (EIN) to protect your private SSN
- Considering buying business insurance
- Only hiring independent contractors instead of employees
- You must ensure you’re paying the appropriate business taxes with the IRS.
This leads us to our next disadvantage of having a sole proprietorship. It’s a heavy burden to run a business on your own. Most proprietors report working long hours at the beginning of their business formation.
Ready to Be Your Own Boss?
Becoming a proprietor comes with both advantages and disadvantages. The initial workload and liability are often offset by owning all profits and being your own boss.
Rather than earn income and wealth for someone else, why not focus your efforts on yourself?
Are you still unsure about which path you should take with your budding business? Do you have questions you want answered face-to-face? If so, then reach out to the Law Office of Lisa Willis at (925) 463-9000.