Are you motivated enough to become an entrepreneur of your own business? How well prepared are you in achieving your goal?
You can definitely achieve the goal of starting your own business without any compulsory need to form any kind of partnership or a limited liability company (LLC).
Interestingly, the sole proprietorship will give you the privilege to freelance your business at one angle and still give room for you to have your full-time job.
Being the sole owner of your business will not require you to inquire for any formal action to form a sole proprietorship; nevertheless it will be vital for you to acquire every needed document that will enable your business run freely.
More so, starting by registering your sole proprietorship shouldn’t compulsorily engage any process that’ll be so complicated. You can follow the guideline below to fully get started:
- Choose a Name for your Business: This is almost the first thing to do because this is what will give your business it’s unique identity that people can easily engage with. Remember that your legal name is by default nevertheless you can have a different business name.
- Get it Registered: After sorting out what name exactly that your business will bear, then you may begin to think of getting it registered but you might just decide to start running your business with your full legal name without the need for registration and just simply make use of your Social Security number to pay tax. Meanwhile you can opt to use a different name called a trade name probably because you want to hide your business from private identification or for publicity purpose. Any other name apart from your own name must be registered as a DBA name. You must therefore ensure that you find out what will be required for registration in your region as it differs from place to place.
- Get a Domain Name: This is a unique URL address that helps websites to get more traffic. You can have a website where customers and prospective customers can know more about what you do and what they’re likely to get from what you offer. This is a powerful means of publicizing your business which can be seen as your business online home base. Be sure nobody else has your DBA, and try to get your domain name closer to your business name.
- Get an EIN: The employer identification number is necessary if you plan to have employees or pay excise taxes, otherwise you can use your Social Security number to pay your taxes. You can apply for this on the IRS website if needed.
- Get Necessary Permits and License: Your business category will be dependent on what license and permits you’ll need, as the licensing requirements differs from state to state, so you must find out what’s required in your region.
- Insure your Business: This could be a wise business move knowing fully well about the different occurrences and liabilities that can arise at any point as you run your business. With this arrangement you can be sure of financial back up when things go wrong unexpectedly.
- Have an Account for your Business: While this might not be a compulsory step to take, it could rather turn out to be a very advantageous one. This will help you set up and differentiate business finances and expenses from yours. Paying taxes will also come with ease and simplification. Finally it will be easier to get quicker loans or credit anytime your business needs that.
What Is the Startup Cost for a Sole Proprietorship?
Starting a sole proprietorship is relatively inexpensive compared to other business structures. Costs vary depending on location and industry, but typical expenses include:
- Business registration (if required): $10 – $100
- Licenses and permits: $50 – $500 (varies by business type)
- Website and branding: $100 – $1,000 (optional but recommended)
- Marketing and advertising: $50 – $500 (depending on strategy)
Overall, you can start a sole proprietorship with as little as $100 to $1,000, depending on your business needs.
What Is the First Step in Starting a Sole Proprietorship?
The first step is choosing a business name and ensuring it’s unique in your state or country. After that, you may need to:
- Register the business name (if required).
- Obtain any necessary licenses or permits.
- Set up a business bank account (optional but recommended).
- Start operating and tracking income and expenses for tax purposes.
Is a Sole Proprietorship Easiest to Start?
Yes, a sole proprietorship is the easiest business to start because it requires minimal paperwork, has low costs, and doesn’t require formal business structures like corporations or LLCs. You can start operating immediately in most cases, with no complex legal requirements.
How Do Sole Proprietors Get Paid?
Sole proprietors get paid directly from their business revenue. Unlike corporations with salaries or dividends, a sole proprietor’s income comes from business profits. You can pay yourself by withdrawing money from your business earnings, but you must set aside a portion for taxes.
How Much Do I Need to Set Aside for Taxes as a Sole Proprietor?
Sole proprietors typically need to set aside 25-30% of their income for taxes, depending on their country and tax bracket. This includes:
- Income tax (varies based on earnings)
- Self-employment tax (for covering Social Security and Medicare in the U.S.)
- State or local taxes (if applicable)
Using a tax professional or accounting software can help estimate the exact amount you should save.
Does a Sole Proprietor Need an EIN?
No, a sole proprietor does not necessarily need an EIN (Employer Identification Number) unless they:
- Hire employees
- Want to open a business bank account (some banks require an EIN)
- Need to file business taxes separately (for specific industries)
If you operate under your name and have no employees, you can use your Social Security Number (SSN) instead.
Does a Sole Proprietor Need a Business Bank Account?
A business bank account is not legally required, but it is highly recommended. Keeping personal and business finances separate makes tax filing easier and enhances credibility with clients. Some banks may require an EIN to open a business account.
How Much Does an EIN Cost?
An EIN is free when obtained directly from the IRS (Internal Revenue Service) in the U.S. You can apply for it online at the IRS website. Beware of third-party services that charge fees for this free process.
What Is the Difference Between Sole Proprietor and Self-Employed?
- Sole proprietor refers to the business structure—one person running an unincorporated business.
- Self-employed is a broader term referring to anyone who works for themselves, including sole proprietors, freelancers, and independent contractors.
All sole proprietors are self-employed, but not all self-employed individuals are sole proprietors (some may have LLCs or partnerships).
Is It Better to Be a Sole Proprietor or LLC?
- Sole proprietorship is better if you want a low-cost, simple business setup with minimal regulations. It’s ideal for freelancers, small businesses, or testing a new idea.
- LLC is better if you want legal protection for personal assets, tax flexibility, and business credibility. It’s ideal for businesses with higher risks, employees, or plans for long-term growth.
If your business involves financial risk or potential lawsuits, an LLC is the safer option. Otherwise, a sole proprietorship is an easy and cost-effective way to start.
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Conclusion
Now that you’re acquainted with what’s needed to get started as a sole entrepreneur, be aware that sole proprietorship can be a very rewarding experience, however know that you’ll bear any form of debts, losses and liabilities alone.
Hence, engaging business insurance might help cushion the effects of them all.
