Self-employment has its own well-known set of pros (freedom, no bosses) and cons (buying your own health insurance)—but there’s more to this style of working than meets the eye. There are many avenues to becoming self-employed or starting your own business, regardless of your industry. Learn what it means to be self-employed, how to get started, and the most common approaches to self-employment.
What is self-employment?
Self-employment means earning an income by operating your own business or working as a contractor or freelancer. Self-employment can be many things, from running an ecommerce site to starting a brick-and-mortar coffee shop to working directly with individuals as a fitness instructor. As a self-employed worker, you set your hours and control business operations.
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Types of self-employment
There are three common ways to approach self-employment:
Owning a business
When you own a business, you have sole control of that business’s operations and finances. As a small business owner, you might start an online store to sell homemade candles or run a brick-and-mortar business selling services like haircuts. You may hire employees to help run your business, contract some roles to third parties, or manage it entirely yourself.
Freelancing
Freelancers—such as freelance writers, video editors, and software developers—offer specialized services to multiple clients on a project-by-project basis. An example of this would be a content writer taking on an assignment to write two blog articles every week for a beauty brand. As a freelancer, you sell your time and services directly to your clients, charging an hourly or per-project fee.
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Contracting
Independent contractors are similar to freelancers; they’re self-employed, and work for clients on a temporary as-needed basis. Contractors are distinct in that their work may more closely resemble full-time, 9-to-5 work. They typically take on fewer clients than freelancers, instead devoting most of their time to just one or two clients who provide the bulk of their income. For example, a business might outsource its bookkeeping to an independent contractor.
Benefits of self-employment
Consider some of the plus sides of starting a self-employment journey:
Flexibility
Many business owners and self-employed individuals relish the autonomy and control they’re able to exercise in their professional lives. Compared to working in a traditional corporate environment, working for yourself can feel incredibly liberating.
Personal fulfillment
For some, building a business can feel like a life calling. Refining your expertise, building relationships with clients, and making products that others enjoy can be immensely rewarding.
Income potential
Being self-employed has no hard limits on earning potential in that it is entirely up to you how quickly you want to grow your business. While an employee’s pay is capped by their salary band, an independent contractor has control over their rates.
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Drawbacks of self-employment
There are also significant risks small business owners face:
Uncertainty
When you run your own business, your income is dependent on your efforts and the customers you’re able to attract. Depending on the work you do, you may have busy and slow seasons with significant fluctuations in business volume. It may take months or years to build up a repertoire of clients and turn a profit. External factors—like economic recessions, natural disasters, and competition—can also influence your business’s success.
Responsibility
Being your own boss means you have to provide your own benefits, such as health insurance and other employer-provided benefits. It also means being responsible for aspects of self-employment that may not be your area of expertise, such as accounting and marketing.
Upfront investment
In the early stages of starting a business or transitioning to self-employment, your business will demand incredible amounts of time and resources to get operations running. This initial hurdle is often when self-employed workers make the least money, because everything is brand new and still in its growth stage.
How to become self-employed
- Define your business
- Research
- Develop your business plan
- Consider registering as an LLC
- Gather funding and financing
- Promote your business
Here are a few steps to guide you as you make the jump to self-employment:
1. Define your business
If you’re looking to become self-employed, start by taking stock of your skills, expertise, and passions. Take a moment to assess:
- What makes you excited to get up in the morning?
- What aptitudes, training, and experience do you have?
- What are your weaknesses?
- What industries or topics fascinate you?
To come up with a business idea, think about what problems you could solve, gaps in the market you could fill, or existing services you could improve.
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2. Research
Next, research if your business idea is viable. Set up informational interviews with other self-employed individuals working in similar fields. Identify who your competitors would be, and see how they conduct their businesses. Read about business models and different approaches you can take to operate your business. Study founder stories to learn how other entrepreneurs started out on their own and built successful businesses.
3. Develop your business plan
A business plan can help you determine the feasibility of going solo, and it’s also critical if you’re looking to secure funding from potential investors or lenders. A basic business plan should include:
- Executive summary. A one-page overview of your business and its goals.
- Products or services offered. This is where you’ll go into a detailed description of your products or services, listing their key features and benefits.
- Market analysis. Give an industry overview, competitive analysis (your competitors’ strengths and weaknesses), and information about the market size and growth potential.
- Marketing plan. Include a high-level overview of the marketing channels you’ll use to promote your business and the metrics you’ll look at to gauge success.
- Logistics plan. Offer a description of the production process and distribution strategy.
- Financial plan. Detail the money you’ll need to start the business and revenue projections for when it’s up and running.
- Management team. If you plan on having employees, use this section to introduce key team members and their roles.
4. Consider registering as an LLC
When you start out, your business is classed as a sole proprietorship by default. However, certain benefits and protections come with registering your business as a limited liability company (LLC). Unlike a sole proprietorship, you as the business owner and operator are separate and distinct from your LLC. So, should anything unfortunate happen with your business, this structure shields you from personal liability.
Choosing between a sole proprietorship and an LLC also has implications for tax structure, startup costs, and financing options.
5. Gather funding and financing
If you’re starting out as a freelancer with few business expenses—say, a social media manager or graphic designer—you may be able to start searching for gigs right away on platforms like Upwork and Fiverr, as well as within your personal network. If you’re building a business from scratch and need money for inventory or office space, you may need to raise funds.
There are several pathways to securing funding and jumpstarting your business bank account. Many business owners look to the US Small Business Administration to access special loans for business owners and entrepreneurs. Others may look to local banks, friends, or family to raise the needed funds to start their business or bring on partners. Lean on your business plan to engage potential investors and inform loan providers about your plans.
6. Promote your business
You already have your vision, mission, and goals outlined, all of which you can use to inform your marketing plan. Whether you’re a local plumber or freelance software developer, work on building a social media presence to reach prospective customers. Choose a couple of social media platforms best suited for your business and use them to share social proof, behind-the-scenes content, and education about your products and expertise.
How to become self-employed FAQ
What types of work do self-employed people do?
Self-employment can take many forms: You can run your own business, either from brick-and-mortar stores or online, or work as an individual practitioner, like a fitness instructor or tutor.
How do self-employed individuals pay taxes?
When you’re self-employed, taxes are not automatically taken out of your income, which means you need to pay your taxes on your own. Self-employed individuals pay quarterly estimated taxes to the IRS. As a self-employed person, you are responsible for paying social security, federal, and local taxes.
What business structures are best for self-employment?
The most common business structures for self-employed individuals are sole proprietorships and LLCs. A sole proprietorship is easy to start, requiring little capital and paperwork, but it offers no liability protection. By contrast, an LLC shields your personal life from any business liabilities but requires more paperwork and money to get up and running.