Walking the “Lonely” Road: the Life of a Sole Proprietor
Business structures already can be quite complicated, especially if you don’t know what you’re dealing with. For sure, the simplest of formations out there requiring literally no documentation at all, to some degree, may be the most complex from a certain point of view. This is why it’s imperative that you know what a sole proprietor is and why you might want to establish yourself as one (or not).
What Is a Sole Proprietor?
Quite possibly the most complicated aspect of a sole proprietor has already been mentioned: you literally don’t have to do anything in regards to legal forms — no consulting an attorney (although it wouldn’t hurt to do so). There’s no form, or tax form necessary to file for your return. You simply file as an individual.
You most likely won’t even need to trademark anything, or copyright anything (although it wouldn’t hurt either). Your business is you.
Typical sole proprietors include:
- General Contractors
They’re in business for themselves. Their names often are the business. Pretty appealing from a certain perspective.
On the Flip Side of the Coin….
So you may not need much oversight for employees, and other expenses like bookkeeping (as many sole proprietors work from home or commute from client to client), and you can also write off certain expenditures like miles driven and certain utilities like your electric and Internet bill, but here’s the downside of being a sole proprietor —
You’re all alone. You’re the one responsible.
That means you’re in charge of your own marketing, customer service, accounting, and actual fieldwork, product development and delivery. A sole proprietor often doesn’t have divisions or departments — no extensions or multiple email addresses. Just you. And that can be a little intimidating.
Why? For instance: if a customer complains, perhaps files a lawsuit due to dissatisfaction, your business isn’t the entity suffering; you, instead, suffer. Compensation comes directly out of you — not out of the actual revenue generated by your business. You and the business are one, so no matter how you look at it, you as the sole proprietor face legal and financial hardship any time something goes wrong.
A Fair Balance, Maybe?
I suppose it depends on the industry. If you’re likely to be held accountable for plenty on your plate, you might not want to run your business as a sole proprietor. If you’re looking to skip any nuances in tax forms, additional fees, more paperwork to fill out, and even health insurance requirements, than most definitely don’t file as anything more.
Ultimately it all depends on what you prefer for your business. Any other questions about what you need to know to get a business going? Sign up right here for bookkeeping help!
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