The chance to pursue your passion. Greater ability to determine your own success. The deep-seated belief that you can do it better than anyone else. Those are just a few reasons why people start their own businesses.
And they very often start those businesses as sole proprietors. Whether it was General Motors or a rural general store, the idea to open for business likely took root in the head of a sole proprietor.
If you’re considering starting a business, here are a few reasons why being a sole proprietor might be a good decision for you.
The whole idea of “getting down to work” is to accomplish something, right?
However, whether you’re trying to decide on which movie to watch on Saturday night, or which accounting software to buy for your business, it can often take a lot longer and be a lot harder when someone else is involved.
When you’re a sole proprietor, you’re the one choosing the software, setting your prices, or deciding which ad to run (your significant other may still have some input on the weekend entertainment, though).
Having that flexibility and nimbleness matters. If you want to be more successful than your competitors, you need to make a better product, provide a better service, or solve customer problems that other people can’t.
That often means doing things differently, like, for example, letting people choose what movie to watch right from their living room instead of driving across town to a video store.
As a sole proprietor when you have an idea you want to try, you can try it. You don’t have to sell it to a board of directors or prove it to your stockholders.
In fact, freedom and control can be competitive advantages. Annie Withey, the founder of Annie’s Homegrown, started her business as a sole proprietorship and kept it that way for several years. It gave her the ability to test new ideas and create and take new products to market quickly.
Doing something different often can come with risks. This can be especially true for sole proprietors, so it’s important to protect your business from the hazards that can come with working on your own.
We get that. That’s why we help a lot of sole proprietors protect their business from risk with sole proprietorship insurance.
Give us 10 minutes and we can find the right coverage for you, often as low as $25.95/month.* Then you can get back to changing things for the better.
Get an affordable & customized policy in just minutes. So you can get back to what matters: Your business.Start Here >
Unless your business is manufacturing paper, you’re probably in favor of seeing less of it. Business owners everywhere, rejoice. That’s one of the big advantages of a sole proprietorship.
For many business owners, just starting to work is enough to make you a sole proprietor. That’s because you generally don’t have to register or formally declare that you’re in business.
Naming your business can be easy as well. You and your business can share your name (e.g John Smith , Disc Jockey). However, if you have a great name for your business and want to use it (e.g., Zip It and Dance), you may be required to register for a “fictitious business name,” or DBA (doing business as) with your state.
There are some additional licensing, permit, and certification requirements that vary at the state and local level and by what you do. Your local secretary of state’s office can typically provide much of that information for you. However, when it comes to starting your business, a sole proprietorship can usually be a quick, easy, and relatively paperwork-free way to get going.
The money you make from your sole proprietorship is usually considered “pass-through income” by the IRS.
The good news here is that your business income can likely be included as part of your personal tax return, and taxed at your personal tax rate. If so, you don’t need to file a separate tax return for your business.
Keep in mind that you’ll still have to pay the full self-employment taxes (Medicare and Social Security), but they too can be included on your personal tax return.
Another advantage is that you also may be able to deduct the cost of health insurance for you, your spouse, and any dependents.
While taxes can be much easier to deal with when you’re a sole proprietor, it’s a good idea to talk with an accountant or tax professional regarding your particular business and financial situation.
While in some states there may be a fee for a business license or a DBA, there are no fees to set up a sole proprietorship. That also can mean no additional forms to find, fill out, and file.
As a sole proprietor, you’ll also typically be able to avoid the periodic registration and reporting fees that can come with LLCs (limited liability companies) and other business entities.
From a legal point, an individual and a sole proprietor are one and the same, so you can use your personal bank account for business payments and deposits. That can save you the time and expense of setting up and maintaining business bank accounts.
However, before deciding to forgo a business account, consider how many transactions you expect to have on a regular basis. For example, let’s say you’re selling health and beauty products online, and you’re filling and shipping a lot of orders every day.
It may be easier to mix your sales receipts with your personal transactions, but you might be making more work for yourself or your accountant (which may mean a bigger accounting bill) at the end of the month.
Having a business bank account also offers some additional benefits, such as building a credit rating for your business and providing a clear financial history if you plan to apply for a business credit card or loan.
While you certainly want potential customers to know a lot about you and your business, the same may not be true when it comes to your competitors.
As a sole proprietor, you may not have the same disclosure and reporting requirements as other types of businesses. That can mean more privacy and autonomy.
This can be a significant consideration if what you do or make is based on a unique process or proprietary technology.
The advantages of a sole proprietorship can be very attractive to small business owners, especially if you’re just getting started. To make sure you get the most from the benefits of a sole proprietorship, it helps to have protection from risks.
Among the biggest risks are business liabilities, such as causing bodily injury or accidental damage to someone’s property, as well as negligence or mistakes.
With a sole proprietorship, your business is not a separate entity. Legally, John Smith, DJ, and John Smith, individual, are the same. Debts and claims against your business are also debts and claims against you. That means that not only could you lose your business, you could potentially lose your home, car, savings, and other personal assets.
That’s a pretty scary scenario, but there is something you can do to safeguard yourself and your business: Get sole proprietorship insurance.
General liability (GL) insurance typically covers damages resulting from third-party accidents, physical injury, and property damage. It’s a popular type of coverage, especially if you run a business where you’re working on or at customers’ homes or other properties.
For example, imagine you’re a handyman cleaning out a customer’s gutters. You step away to grab a tool and leave your ladder unattended. The customer’s son trips over the ladder, gets injured, and his parents have to take him to the hospital. Later, the angry parents sue you for their son’s medical bills and ongoing doctor’s visits.
Without insurance coverage, you’d likely have to pay those bills on your own, as well as your legal costs, which could put you out of business.
But with GL insurance, you’re more likely to be protected. Your plan may be able to cover the cost of medical bills, plus corresponding legal fees, up to your coverage limit.
On the other hand, professional liability insurance (PL) covers you if you make an honest mistake or inadvertently overlook an important detail as part of your work.
Say you’re an engineer. While working on a project, you make a mistake testing a safety element of a design. It ends up failing and causing the client a financial loss.
That can be both embarrassing and costly.
Professional liability insurance can cover the cost of the damage and your client's financial hardship. This type of insurance protection means that you likely won't have to use your savings or other personal assets to cover damages and legal fees.
Before you start thinking this is all making a sole proprietorship sound more complicated, let’s take a breath.
At Simply Business, we have a deep appreciation for everything small business owners put on the line. That’s why we make it fast, easy, and affordable for you to get quotes from the nation’s top business insurers in less than 10 minutes.
If you’re like most small business owners, those 10 minutes are only a small fraction of time in your work week, so you’re giving up a little bit of time to get a lot of peace of mind.
According to the Small Business Administration’s (SBA) Office of Advocacy, there are 30.2 million small businesses in the United States.
The SBA reports that small businesses make up 99.9% of all U.S. businesses.
OK, that’s a lot of statistical reporting to say that if you’re a dog walker, a contractor, an esthetician, or any other type of sole proprietor, you’re a big part of the U.S. economy.
First, thanks for that.
Secondly, we work with thousands of small business owners in various professions. While helping them with insurance, we often get a chance to understand what it’s like to be running your own operation in a very competitive and constantly changing world.
That’s why we offer other articles like this one, as well as business insurance.
While the numbers say there are a lot of you out there, there may be days when it feels like it’s you and only you. That can be both an upside and a downside of a sole proprietorship.
But thanks to the internet, you can be in business for yourself without feeling like you’re all by yourself.
A good place to look for help and advice is the Small Business Administration. They have a wealth of information to help you launch, manage, and grow your business. The SBA also provides resources for loans, grants, and mentorship programs.
Seeking out groups on social media also can be an easy and effective source of information and advice. It’s also a good way to connect with fellow entrepreneurs in your area and in your line of business (and as we’ve just pointed out, there are a lot of you out there).
Along with all of that, there’s also a lot of information for sole proprietors right here at Simply Business.
We’re always glad to help, sole proprietor.
* Monthly payment calculations (i) do not include initial premium down payment and (ii) may vary by state, insurance provider, and nature of your business. Averages based on January - December 2020 data of 10% of our total policies sold.
This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer
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*Harborway Insurance policies are underwritten by Spinnaker Insurance Company and reinsured by Munich Re, an A+ (Superior) rated insurance carrier by AM Best. Harborway Insurance is a brand name of Harborway Insurance Agency, LLC, a licensed insurance producer in all 50 states and the District of Columbia. California license #6004217.