There is a lot of confusion about the difference between being self-employed and owning a small business. The two are not always mutually exclusive – many people are both self-employed and own small businesses. But there are some key distinctions between the two that you should be aware of before deciding to start your own business or become self-employed.
Both career options have their pros and cons, so it’s important to carefully consider which one is right for you. In this article, we will be exploring the topic of self-employment vs business owners. We will be looking at their pros and cons and help you decide which option is right for you. So if you are considering becoming self-employed or starting your own business, read on to learn more about these two career options!
Table Of Content
What is Self-Employment?
Types of Self-Employment
The Pros and Cons of Being Self-Employed
How is small business ownership defined?
What are the characteristics of small businesses?
The Pros and Cons of a Small Business Owner
Taxes for small businesses and self-employed
Insurance for small business owners vs. self-employed
What is Self-Employment? (Definition & What It Means to be Self-Employed)
As the name suggests, self-employment means that you are your boss. This means, you work for yourself and you are not employed by anyone else. In simple words, being self-employed means that you are in control of your work and career.
When you are self-employed, you are responsible for finding your work, managing your own time, and setting your rates. This can be a great way to have more control over your career and work-life balance. However, it also means that you have to be very organized and self-motivated, as there is no one else keeping you on track but yourself.
There are many different ways to be self-employed. You can start your own business, work as a freelancer, or even become a contractor. Being self-employed has a lot of benefits, but it also comes with some challenges that you should be aware of before deciding to go down this path.
Types of Self-Employment
Now that we know what self-employment is, let’s take a look at some of the different types of self-employment.
1. Sole proprietorship
A sole proprietorship is a type of business owned and run by one person in which there is no legal distinction between the owner and the company entity. This simply means that the owner of the business is personally liable for all debts and obligations of the business. There is no other owner or partner to share the burden. This is also one of the most common types of self-employment.
2. Partnership
A partnership is a type of business in which two or more people share ownership and responsibility for the company. Partnerships can be either formal or informal, and there are many different types of partnerships to choose from, depending on the business goals and structure. Partnerships are generally less risky than sole proprietorships, as the liability is shared among the partners. When it comes to the partnership you can either have a 50:50 partnership or an unequal partnership.
3. Independent contractor
The next type of self-employment is working as an independent contractor. Independent contractors are usually hired by businesses to work on specific projects or tasks. They are not employees of the company, but rather they are self-employed individuals who have been contracted to do a job. This type of work can be very flexible, as you can usually choose your hours and even work from home. However, it can also be very unstable, as there is no guarantee of ongoing work.
Read Also: Shoplifting in Business – Minimize Risk and Prevent Profit Loss
Streamline your business with Octopos– A Complete POS System with Big Boys Tools without the Big Price
It is a lot more than a point of sale. Octopos is easy and intuitive for you and your staff to use. Yet you get all these sophisticated tools to manage inventory, track and engage customers, get meaningful insights into your business, and much more.
The Pros and Cons of Being Self-Employed
Being self-employed is not easy as it might seem. On the one hand, you have the freedom to work when and where you want, set your rates, and be your boss. Let’s take a look at some of the pros and cons of being self-employed:
Pros
You can work from home:
One of the best things about being self-employed is that you can often work from home. This can save you a lot of money on commuting costs and childcare costs. It can also be very convenient, as you can work whenever you want and in your PJs if you want!
You get to be your boss:
When you are self-employed you don’t need to follow someone else’s rules and regulations. You will be your boss and can make decisions for yourself. In addition, you can delegate tasks to others if you want to and this can be very empowering!
You can do multiple gigs at a time:
The best part about being self-employed is that you can work for multiple clients or do multiple gigs at a time. This can help you to make more money and also to gain more experience. Also, you can make more money and have more variety in your work life.
Cons
No security:
One of the worst parts of being self-employed is that there is no security. This means in one month you can make $3000 and in the next, you can make $0. This can be very stressful and can make it difficult to budget or plan for the future.
You will be responsible for your taxes:
Tax can be a headache if it is not managed properly. When you are self-employed you will be responsible for your taxes and this can be a lot of work. You will need to keep track of your expenses and make sure you are paying the right amount of tax.
No retirement schemes:
When you are self-employed you will not have access to any retirement schemes. This means that you will need to make your arrangements for retirement. This can be difficult, as you will need to save up a lot of money to ensure a comfortable retirement.
You have to hustle a lot:
Becoming self-employed is not an easy task as it can take years to build up a client base and make a good income. This means that you will need to hustle a lot in the beginning and this can be very tiring.
Read Also: How to Write a Business Plan for a Loan?
What Does It Mean to be Self-Employed?
Being self-employed means that you are not employed by a company or organization, but instead running your own business. You take on the responsibility for all aspects of your business, from marketing and sales to accounting and operations.
As a self-employed individual, you are responsible for obtaining any necessary licenses or permits before operating your business. Additionally, you need to be knowledgeable about tax laws, business regulations, and other legal requirements.
When you are self-employed, your income comes from working directly with clients or customers who pay you for goods or services. You may also receive income from investments such as stocks, bonds, mutual funds, real estate, and more.
There are both pros and cons to being self-employed.
For example, you have the freedom to be your boss and make decisions that are best for you and your business.
On the other hand, it can be difficult to find clients or customers who need or want what you offer and managing all aspects of your business can be time-consuming. Additionally, self-employment often requires more financial risk than working for someone else, as there is no guarantee of income.
Overall, being self-employed can be a rewarding and satisfying experience if you can effectively manage your business. It can also provide you with the flexibility to set your hours and pursue interests outside of work.
All you have to do is assess your skills, interests, and goals to see if self-employment is the right path for you.
If you’re thinking about becoming self-employed, there are a few things you should keep in mind:
1. Determine if you have the necessary skills and knowledge to run your own business. If not, consider taking classes or seeking advice from experienced entrepreneurs.
2. Create a business plan that includes a detailed description of the services or products you offer, how you will market them, and what expenses are associated with your business.
3. Make sure you understand how to handle finances, including taxes, legal requirements, and record-keeping.
4. Research different funding options if you need financial help to get started.
5. Consider joining a professional organization or network in your industry for guidance and support.
By taking the time to plan, you can increase your chances of success as a self-employed business owner.
How is small business ownership defined?
Now when it comes to small business ownership, the definition is a bit more clear cut. According to the Small Business Administration (SBA), a small business is referred to as a business that is independently owned and operated, organized for profit, and not dominant in its field.
Depending on the industry, the SBA’s size standards define either the maximum number of employees or maximum amount of revenue a business can have and still be considered small.”
To put it simply, a small business is an independently owned and operated business that is not dominant in its field. The size of a small business can be defined by either the number of employees or the amount of revenue it generates.
What are the characteristics of small businesses?
Here are some of the key characteristics of a small business:
1. Limited revenue:
One of the most defining characteristics of a small business is that it has limited revenue. This is because small businesses generally have a smaller customer base and generate less revenue than larger businesses.
2. Fewer employees:
Small businesses also tend to have fewer employees than larger businesses. This is because these businesses have a smaller customer base and can only afford to hire limited employees.
3. Small market area: Small businesses typically operate in a small market area. Since they have a specific customer base, they do not need to have a large geographical area to cover. This also leads to regular and loyal customers.
4. Simple organizational structure:
Small businesses have a simpler organizational structure than larger businesses. This is because they have fewer employees and a smaller customer base. As a result, they do not need to have a complex hierarchy or a large number of departments.
5. Personalized service:
Small businesses are generally able to provide more personalized service because they have a smaller customer base. This allows them to get to know their customers better and to cater to their individual needs.
The Pros and Cons of a Small Business Owner
Similar to self-employment, there are both pros and cons to being a small business owner.
Pros
1. Equity:
As a small business owner, you will have equity in your business. This means that you will own a portion of the business and will be able to reap the rewards if the business is successful.
2. Future gains:
Even if you have a few employees or a smaller customer base, you can still take your business to the next level. If you can offer high-quality products or services, you can grow your business and make huge future gains.
3. Tax breaks:
Small businesses are often eligible for tax breaks. This is because the government wants to encourage small businesses and help them thrive. As a result, you may be able to save money on taxes by owning a small business.
4. Control:
As a small business owner, you will have more control over your business than if you were employed by someone else. This means that you can make all the decisions and you will be the one in charge. This will help you become a better entrepreneur and will give you a sense of satisfaction.
5. Independence:
Small business ownership also provides you with independence. This means that you will not have to answer to anyone else and you can run your business the way you want to. You will be your boss and you can make all the decisions.
Cons
High risk:
One of the biggest downsides of being a small business owner is that it is a high-risk venture, even the smallest mistake can lead to big problems. This is because you are solely responsible for your business and if it fails, you will be the one who suffers the consequences.
Long hours:
Small business owners often have to work long hours. This is because they have to take care of all the aspects of their business and they do not have a lot of help. As a result, you may have to sacrifice your personal life to make your business successful.
Financial burden:
Another downside of being a small business owner is that you will have to shoulder the financial burden yourself. This means that you will have to invest your own money into the business and you will be the one who is responsible for its debts.
Stress:
Small business ownership can also be a very stressful experience. This is because you will have to worry about all the aspects of your business and you will be the one who is ultimately responsible for its success or failure.
Also Read: The Costs Involved in Starting a Coffee Shop
Taxes for small businesses and self-employed
Whether you are a small business owner or self-employed, you will need to pay taxes on your income. The tax rates for small businesses and self-employed individuals are different from the tax rates for employees. Let’s take a look at the key difference between self-employed and small business owners when it comes to taxes.
Self-employed individuals are considered to be sole proprietors and they are taxed as such. This means that they will need to file a personal tax return and pay taxes on their income. The tax rates for self-employed individuals vary depending on their income and the number of dependents they have.
Small businesses, on the other hand, are taxed as corporations. This means that they will need to file a corporate tax return and pay taxes on their income. The tax rates for small businesses vary depending on their size and the type of business they are. However, small businesses can get a tax break if they are registered as small business corporations as we discussed earlier.
Insurance for small business owners vs. self-employed
Another key difference between small business owners and self-employed individuals is that small business owners are required to have insurance while self-employed individuals are not.
Small businesses are required to have insurance to protect themselves from risks such as liability, property damage, and workers’ compensation. This is because small businesses are more likely to be sued than self-employed individuals.
In addition, if you have employees working for you, you might have to carry workers’ compensation insurance. This is because your employees should be covered in case they are injured while working for you.
Self-employed individuals are not required to have insurance. However, they can purchase insurance to protect themselves from risks such as liability and property damage.
Summary
Self-employed vs small business is one topic that always comes up in discussion. Even though they are both running their ventures, there are several key differences between the two. As you can tell by now, the major difference lies in how they are taxed, with small business owners being taxed as corporations and self-employed individuals being taxed as sole proprietors.
Another key difference is that small business are required to have insurance while self-employed individuals are not. This is because small businesses are more likely to be sued than self-employed individuals.
Becoming successful either way requires hard work, dedication, and a bit of luck. It’s important to remember that both come with their own unique set of pros and cons. Weighing these out is the best way to decide which path is right for you. Good luck!
Discover how octopos can help you grow your small business.