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What Is a Sole Proprietorship?

• How It Works
• Pros and Cons
• How to Create One
• S.P. vs. LLC vs. Partnership
• Transition to LLC

The Bottom Line

• Small Business

Sole Proprietorship: What It Is, Pros and Cons, and Differences From an LLC

• How to Start a Business: A Comprehensive Guide and Essential Steps
• How to Do Market Research, Types, and Example
• Marketing Strategy: What It Is, How It Works, How To Create One
• Marketing in Business: Strategies and Types Explained
• What Is a Marketing Plan? Types and How to Write One
• Business Development: Definition, Strategies, Steps & Skills
• Business Plan: What It Is, What's Included, and How to Write One
• Small Business Development Center (SBDC): Meaning, Types, Impact
• How to Write a Business Plan for a Loan
• Business Startup Costs: It’s in the Details
• Startup Capital Definition, Types, and Risks
• Bootstrapping Definition, Strategies, and Pros/Cons
• Crowdfunding: What It Is, How It Works, and Popular Websites
• Starting a Business with No Money: How to Begin
• A Comprehensive Guide to Establishing Business Credit
• Equity Financing: What It Is, How It Works, Pros and Cons
• Best Startup Business Loans
• Sole Proprietorship: What It Is, Pros & Cons, and Differences From an LLC CURRENT ARTICLE
• Partnership: Definition, How It Works, Taxation, and Types
• What is an LLC? Limited Liability Company Structure and Benefits Defined
• Corporation: What It Is and How to Form One
• Starting a Small Business: Your Complete How-to Guide
• Starting an Online Business: A Step-by-Step Guide
• How to Start Your Own Bookkeeping Business: Essential Tips
• How to Start a Successful Dropshipping Business: A Comprehensive Guide

Investopedia / Theresa Chiechi

A sole proprietorship is an unincorporated business that has just one owner with no separation between the business and the owner. The owner receives all profits but is also liable for all debts and losses.

The owner of a sole proprietorship pays personal income tax on profits earned from the business. Many sole proprietors do business under their own names because creating a separate business or trade name isn’t necessary.

Also referred to as a sole trader or a proprietorship, a sole proprietorship is the easiest type of business to establish or take apart, due to a lack of government regulation. As such, they are very popular among sole owners of businesses , individual self-contractors, and consultants. Most small businesses start as sole proprietorships and either stay that way or expand and transition to a limited liability entity or corporation .

Key Takeaways

• A sole proprietorship is an unincorporated business with only one owner who pays personal income tax on profits earned.
• Sole proprietorships are easy to establish and dismantle due to a lack of government involvement, making them popular with small business owners and contractors.
• Most small businesses start as sole proprietorships and end up transitioning to a limited liability entity or corporation as the company grows.
• One of the main disadvantages of sole proprietorships is that they do not have any government protection, as they are not registered. This means that all liabilities extend from the business to the owner.
• Sole proprietors report their income and expenses on their personal tax returns and pay income and self-employment taxes on their profits.

Understanding Sole Proprietorships

If you want to start a one-owner business, the simplest and fastest way is through a sole proprietorship. A sole proprietorship begins when you begin conducting business. It doesn’t require filing federal or state forms and has few regulatory burdens, making it an ideal way for self-employed people to start out.

A sole proprietorship is very different from a corporation, a limited liability company (LLC) , or a limited liability partnership (LLP) , in that no separate legal entity is created. As a result, the business owner of a sole proprietorship is not exempt from liabilities incurred by the entity.

For example, the debts of the sole proprietorship are also the debts of the owner. However, the profits of the sole proprietorship are also the profits of the owner, as all profits flow directly to the business owner.

Sabrina Jiang © Investopedia 2020

Advantages and Disadvantages of a Sole Proprietorship

The main benefits of a sole proprietorship are the pass-through tax advantage, the ease of creation, and the low fees for creation and maintenance.

• The tax benefits. Income generated from a pass-through business is only subject to a single layer of income tax and, in some cases, may be eligible for a 20% tax deduction. Along with slashing the corporate tax rate, the Tax Cuts and Jobs Act (TCJA) of 2017 added a tax break for pass-through entities that essentially allows them to deduct up to 20% of qualified business income. That deduction can result in huge savings and runs until Jan. 1, 2026—unless extended by Congress.
• With a sole proprietorship, you do not need to fill out a tremendous amount of paperwork, such as registering with your state. You may need to obtain a license or permit, depending on your state and type of business. But less paperwork allows you to get your business off the ground faster.
• The tax process is simpler because you do not need to obtain an employer identification number (EIN) from the Internal Revenue Service (IRS). You can obtain an EIN if you choose to, but you can also use your own Social Security number (SSN) to pay taxes rather than needing an EIN.
• With a sole proprietorship, you also don’t need a business checking account, as other business structures are required to have. You can simply conduct all your finances through your personal account.

33.3 million

The number of small businesses in the United States in 2023. Together, these businesses employed 61.6 million people across the country.

Disadvantages

There are some disadvantages of sole proprietorships, which can be impactful to the business owner. When a business is registered, it has some legal protections. A sole proprietorship provides no liability protection to the owner. By contrast, an LLC separates business and personal assets. The owner has protection against creditors seizing their personal assets, such as their home.

This unlimited liability goes beyond the business entity to the owners themselves. It can be difficult to get capital funding, specifically through established channels. Standard funding avenues include the ability to issue company equity and obtain bank loans or lines of credit. Banks prefer to work with companies that have a track record and generally view those who are starting out with a small balance sheet as high-risk borrowers. Obtaining funding from large investors can also be difficult.

Less paperwork

No need to obtain an EIN from the IRS

Quick and easy setup compared with other business structures

Low fees and costs

Pass-through tax advantage

Easier banking

Unlimited liability goes from business to owner

Difficulty in raising capital

How to Create a Sole Proprietorship

It isn't very difficult to start a sole proprietorship. That's because there aren't the usual legal hurdles that you have to overcome with other types of business organizations . In most cases, starting the entity is as easy as establishing yourself as the owner and starting up. Depending on where you live, there are certain steps you can take to formally launch your sole proprietorship.

• Get your business license and any permits you may need. Some states require that you apply for licenses (business or occupancy) as well as permits. Check with your state or county clerk to see if you need any special paperwork to begin your business.
• You may need to register your business under its Doing Business As name if your state requires it. If this isn't the case, you can operate under an assumed name, which can usually just be your own. Keep in mind that there are legal ramifications if you choose to run your sole proprietorship under your name.
• Apply for and obtain an EIN. This is an important and necessary step if you're going to have any employees or file tax returns. If this doesn't apply to you, you're able to use your own SSN. Either way, it's always a good idea to check with a tax advisor so you don't make any mistakes.

If you plan to hire employees, you will need an EIN from the IRS. If you are going to sell taxable products, you will need to register for a sales tax license with your state.

Sole Proprietorship vs. LLC vs. Partnership

As noted above, there are certain distinctions between a sole proprietorship, a limited liability company, and a partnership. The chart below highlights some of the key differences between the three.

Transition From Sole Proprietor to LLC

When a sole proprietor seeks to incorporate a business, the owner usually restructures it into an LLC . For this to work, the owner must first determine that the name of the company is available. If the desired name is free, articles of organization must be filed with the state office where the business will be based.

After the paperwork is filed, the business owner must create an LLC operating agreement, which specifies the business structure. Finally, the new company must obtain an EIN—similar to an SSN, but for businesses—from the IRS.

A sole proprietorship has no separation between the business entity and its owner, setting it apart from corporations and limited partnerships.

Sole Proprietorship Tax Forms

Sole proprietors report their income and expenses on their personal tax returns and pay income and self-employment taxes on their profits. The tax forms you may need to file could include the following:

Example of a Sole Proprietorship

Most small businesses start as sole proprietorships and evolve into different legal structures as time passes and the company grows.

For example, Kate Schade started her company, Kate’s Real Food, as a sole proprietor. The company creates and sells energy bars and began as a local vendor in Jackson Hole, Wyoming. The sole proprietorship currently has a production facility in Bedford, Pennsylvania, and can be found in more than 4,000 retailers.

Since launching in 2005, Kate’s Real Food has grown to supply accounts across the country. In response, Schade restructured the business from a sole proprietorship to a corporation to take on investments and expand, a natural step for a growing business.

How Do You Start a Sole Proprietorship?

To start a sole proprietorship, you generally have to launch your business. It is useful to choose a company name. Depending on your business and local regulations, you may need to apply for a permit or license with your city, county, or state. If you plan to hire employees, you will need an employee identification number from the IRS. If you are going to sell taxable products, you will need to register with your state for a sales tax license.

Is Being a Sole Proprietorship the Same As Being Self-Employed?

Yes, being a sole proprietor is the same as being self-employed. A sole proprietor does not work for any company or boss, so they are self-employed.

How Do You File Taxes As a Sole Proprietor?

Filing taxes as a sole proprietor requires you to fill out the standard tax Form 1040 for individual taxes and Schedule C, which reports the profits and losses of your business. The amount of taxes you owe will be based on the combined income of both Form 1040 and Schedule C. If you have employees, there will be other forms to fill out.

Should I Form a Limited Liability Company or a Sole Proprietorship?

That depends on your business. A sole proprietorship is best suited to small businesses with low risk and low profits. Generally, these businesses don’t have a wide range of customers but rather a small, dedicated group. Sole proprietorships often start as hobbies that grow into a business.

The reasons to start a limited liability company (LLC) are the opposite of the reasons above. The business entails some liability risks , has the potential for large profits and a large customer base, and is positioned to benefit from certain tax structures.

How Do You Convert a Sole Proprietorship to an LLC?

Converting a sole proprietorship to an LLC requires you to file articles of organization with your state secretary. Also, you will have to refile your DBA (or Doing Business As) to keep your company name. Lastly, you will need to obtain an EIN from the IRS.

A sole proprietorship is a straightforward way for an individual to start a business. It does not require registering with a state authority for most situations and does not require obtaining an EIN from the IRS.

The benefits of simplicity are accompanied by some drawbacks, including all liabilities being passed through from the business to the individual and funding being harder to come by. Those risks shouldn’t pose much of an issue initially. However, as the business grows, it may make sense to transition into a different legal structure.

Internal Revenue Service. “ Topic No. 407 Business Income .”

Internal Revenue Service. “ Qualified Business Income Deduction .”

Internal Revenue Service. “ Form SS-4 & Employer Identification Number (EIN) 1 .”

U.S. Small Business Administration Office of Advocacy. “ 2023 Small Business Profile ,” Page 1

Internal Revenue Service. “ Do You Need a New EIN? ”

Kate’s Real Food. “ About Us .”

Jackson Hole News & Guide. “ Tram Good: Local Product Goes National .”

Internal Revenue Service. “ Sole Proprietorships .”

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How to Write a Business Plan for a Sole Proprietorship

Starting your own business as a sole proprietor is an exciting journey, offering unparalleled flexibility and control over your professional destiny. Yet, navigating this path successfully hinges on having a clear, well-structured business plan. This essential document serves as your roadmap, outlining your vision, strategy, and the practical steps needed to bring your business to life. Here’s how to craft a business plan that lays the groundwork for your sole proprietorship's success.

Key Components of a Sole Proprietorship Business Plan

A robust business plan for a sole proprietorship encompasses several critical sections:

Executive Summary: Your executive summary should succinctly encapsulate your business concept, target market, and competitive advantages. This section is crucial as it sets the stage for the detailed plan.

Company Description: Offer an in-depth overview of your business, including its structure, the products or services you provide, and your overarching goals. This section lays out the essence of your business and its purpose.

Market Analysis: Conduct a comprehensive analysis of your target audience and competitors. This research is essential for carving out your niche in the market and developing strategies to serve your customers effectively.

Organization and Management: Describe your business's organizational structure and any external support, such as freelancers or consultants, you plan to utilize. This section outlines how your business will operate and scale.

Marketing and Sales Strategy: Detail your approach for attracting and retaining customers. This includes your marketing channels, promotional tactics, and sales processes.

Service or Product Line: Clearly explain what you're offering, focusing on the benefits to your customers and why there's a demand for your product or service.

Financial Plan: Include comprehensive financial projections, such as revenue forecasts, cash flow statements, and a break-even analysis. This section is vital for understanding the financial viability and planning for profitability.

Tailoring Your Plan to a Sole Proprietorship

Emphasize Personal Branding: As a sole proprietor, your personal brand is intrinsically linked to your business. Your plan should reflect how your personal strengths and network contribute to your business's unique value.

Build in Flexibility: One of the strengths of a sole proprietorship is its ability to adapt quickly. Your business plan should include flexible strategies that allow you to pivot in response to market demands or challenges.

Utilizing Resources and Tools

In the journey of drafting a comprehensive business plan for your sole proprietorship, leveraging the right tools and resources can streamline the process and enhance the quality of your plan. Here are two crucial areas where the right resources can make a significant difference:

Recommended Tools and Software

The market is replete with tools and software designed to simplify the business planning process, from formulating your executive summary to projecting your financials. Utilizing these can save you time, provide structure, and even offer insights you might not have considered. Some top recommendations include:

Business Plan Software: Platforms like Plannit AI or Bizplan offer guided experiences through the planning process, with templates and financial forecasting tools that make it easier to create a professional plan.

Financial Modeling Tools: Software such as Excel or Google Sheets, with templates for cash flow statements, profit and loss forecasts, and break-even analysis, can help you craft detailed financial projections.

Market Research Resources: Tools like Statista or Google Trends can provide valuable data on market trends and consumer behavior, informing your market analysis section.

Project Management Apps: Applications like Trello or Asana can help you organize your business planning process, set deadlines, and track progress.

Seeking Professional Advice

While tools and software can streamline the planning process, the insight and guidance from experienced professionals can be invaluable. Consulting with financial advisors, business mentors, or industry experts can offer several benefits:

Financial Planning: A financial advisor can help you create realistic financial projections, advise on funding strategies, and identify potential financial pitfalls.

Business Strategy: Business mentors or consultants with experience in your industry can offer strategic advice, critique your business model, and suggest ways to enhance your competitive advantage.

Legal and Regulatory Guidance: For questions about the legal structure of your sole proprietorship, intellectual property, or regulatory compliance, consulting with a legal expert is essential.

By combining the power of the right tools and software with the wisdom and experience of professional advisors, you can create a business plan that not only lays a strong foundation for your sole proprietorship but also positions it for long-term success and growth.

Common Pitfalls to Avoid in Your Sole Proprietorship Business Plan

Creating a business plan for a sole proprietorship is a critical step in setting up your business for success. However, even the most diligent entrepreneurs can fall into common traps that potentially hinder their progress. Being aware of these pitfalls can help you navigate your planning process more effectively and set a solid foundation for your business growth. Here are key mistakes to avoid:

1. Overlooking Detailed Market Research

One of the most significant oversights in business planning is insufficient market research. Understanding your target market's needs, preferences, and behaviors is crucial for tailoring your products or services effectively. Moreover, a deep dive into competitor analysis allows you to identify gaps in the market you can exploit. Avoid making assumptions without data to back them up, and invest time in gathering insights that will inform your business strategies.

2. Underestimating Financial Needs

Many sole proprietors underestimate the capital required to start and sustain their business until it becomes profitable. This can lead to cash flow problems, which are a common reason for business failure. When drafting your financial plan, include detailed projections for startup costs, operating expenses, and a buffer for unexpected costs. It's better to overestimate your financial needs and have surplus funds than to find yourself in a financial bind.

3. Neglecting a Marketing and Sales Strategy

Assuming that your product or service will sell itself is a critical mistake. A comprehensive marketing and sales strategy is essential for attracting and retaining customers. This strategy should outline your target market, marketing channels, promotional tactics, and sales process. Without a clear plan for how you will reach your customers and convince them to buy from you, even the best business ideas can flounder.

4. Ignoring the Need for Flexibility and Adaptability

The business landscape is constantly changing, and what works today may not work tomorrow. Your business plan should not be so rigid that it cannot accommodate changes in the market, customer preferences, or new opportunities. Incorporate flexibility into your plan, allowing you to pivot or adjust your strategies as necessary to respond to unforeseen challenges or take advantage of new trends.

5. Skipping Professional Advice

Even if you're a seasoned expert in your field, seeking advice from financial advisors, legal consultants, or business mentors can provide valuable insights you might have missed. These professionals can help you identify potential flaws in your plan and offer solutions you hadn't considered. Skipping this step could mean overlooking crucial aspects of your business that could lead to problems down the line.

A well-crafted business plan is your roadmap to success as a sole proprietor, but it's essential to be mindful of common pitfalls that can derail your efforts. By conducting thorough market research, accurately estimating your financial needs, developing a solid marketing and sales strategy, maintaining flexibility, and seeking professional advice, you can avoid these mistakes and build a strong foundation for your business. Remember, the goal is not just to start a business but to sustain and grow it into a successful venture.

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Creating a Business Plan for Your Sole Proprietorship

You have a brilliant business idea that's ready to take flight. But as a sole proprietor, you face unique challenges when it comes to business planning. It's not about following a cookie-cutter template; it's about finding a solution that fits your needs. You're not working with a team of experts; you are the expert.

We shall speak about various aspects of product-market fit, operations, finance, operations, and many other details that must be documented. Here are a few things to remember while crafting a business plan for sole proprietorship.

Collectively, these will be the foundation and vision documents to run the business. You can use it to raise funds or pitch to potential business partnerships. 

Let’s evaluate the importance and contents of each section.

Business Plan: Executive Summary

The first and foremost step for creating a sole proprietorship business plan is to list down every aspect of the business to create a blueprint. It must include the executive summary of the business from the first step to the last, which you can use as a checklist to start successful operations. 

An executive summary of the business includes a brief overview of your business idea, including its name, location, and your products or services. It’ll also have details about your target customers, unique value propositions, and financial projections. Furthermore, the summary must also include the desired online and offline marketing and promotion channels. You can also include the required capital needs and the channels for raising the required capital.

Market Analysis 

Once you have created the executive business summary, the next step is to execute extensive market research to ensure your business’s presence is noted and successful. It is more than likely for the current market to have operational businesses like yours already, which may offer you crucial data on market trends. You can analyze your direct competitors, understand how they market and promote their business, and set a demographic for your target customers. 

Once you have identified your target customers and demographics, you can create multiple sub-business plans to communicate how your products and service offerings will fulfill their needs. Furthermore, you can execute a SWOT analysis to assess your business's strengths, weaknesses, opportunities, and threats. 

Marketing and Sales Strategy

Creating a business plan and streamlining the products or services are vital steps in creating a business plan but must be followed by a comprehensive marketing and sales strategy. A marketing plan includes strategies to create an extensive online and offline business presence. Outline your marketing plan, including your brand, pricing strategy, and promotional efforts, with the overall budget you have in mind for marketing. 

Once you have the marketing plan and goals listed, follow them with comprehensive sales strategies. Analyze the sales target by listing the number of products or services you want to sell in a specific period. Furthermore, include information about the sales channels and the pricing policy, which will help you streamline your profit margin in every sale. 

Product or Service Line

Your business will be as successful as the quality of products or services you offer to the customers. The products and services must align with the chosen demographic and should fulfill their needs. However, it is equally important to communicate relevant information about the features, benefits, and pricing of the products or services to the customers. The information should also include your product/service life cycle and any future development or expansion plans. 

The product or service line you have created must be flexible enough to incorporate customer feedback or change to fit the dynamic market demand better. For example, suppose more customers are seeking to buy the category of products or services you offer online. In that case, your product or service line must follow a process to enlist them online and execute the sales. 

Organization and Management

In a sole proprietorship, you will be the sole owner and have full control over all the aspects of the business. However, with numerous steps in turning your business idea into an operational business, your business plan must have ideal strategies for organizing and managing all the activities from start to finish. For example, if you need raw materials daily, streamline the supply chain and the cost price range for the raw materials. 

Depending on the nature of the business, you may find the management overwhelming for a single individual. Sole proprietorships include the management of various aspects such as accounting, taxation, bookkeeping, payments, etc. Hence, you must analyze your skills and seek the assistance of experts for better management. The business plan should include information about the experts. 

Operational Plan

Day-to-day operations are crucial for a sole proprietorship business to fulfill customer orders promptly and create goodwill. The operational plan must include factors related to your business’s day-to-day operations to ensure that the business runs smoothly. The plan must include the operational location, the facilities to manufacture/store products or services, and the required equipment. 

Furthermore, your business may need raw materials (and their suppliers). The operational plan must include information about the suppliers to outline your production or service delivery process. The operational business plan must provide details if you want to hire other employees to help in the operations. 

Financial Projections

Finance is a vital aspect of a business. It includes effectively recording all transactions in applicable ledgers such as balance sheets, profit and loss accounts, cash flow statements, etc. Furthermore, the financial aspect of the sole proprietorship also includes creating financial projections related to monthly, quarterly, and annual sales and revenue. 

Furthermore, you should detail your revenue and profit goals and outline your pricing strategy. Don’t forget to estimate expenditures, revenues, and profit targets for specific sales. 

The general practice is to create projections for three scenarios, bad, good, and best, to be prepared irrespective of how market conditions change. If you’re making certain assumptions like cost of capital, growth rate, etc, please note them, too.

The appendix in a business plan is a specialized section that includes anything that the sole proprietor feels must be additionally included. These may include any registration, legal, regulatory, and compliance documents. Furthermore, you may also include the resumes of all the applicants for employees you want to hire to analyze them at a specific time in the future and hire the ideal ones. 

India has various Small Business Development Centers offering aspiring entrepreneurs guidance and resources. These centers often provide templates and workshops for creating business plans. You can also visit the websites of the Micro, Small, and Medium Enterprises (MSME) to get real-time updates about the regulatory and administrative compliance for sole proprietorships. Various online platforms, such as Skydo or MyonlineCA , offer business plan templates tailored to the Indian market. You can consult their expert CAs to understand everything about a sole proprietorship business and to create an ideal business plan detailing all the business growth opportunities. 

Conclusion 

Creating a business plan for your sole proprietorship is crucial in setting clear objectives, strategies, and expectations for your venture. While sole proprietorships are relatively simple, a well-thought-out business plan can help you clarify your vision, secure funding (if needed), and guide your business toward success. 

Remember that a business plan should be tailored to your business idea, goals, and growth opportunities. While these resources can provide valuable guidance, it's important to customize your plan based on your unique circumstances and market research. Additionally, regularly update your business plan to reflect business and market conditions changes.

Q1. How can a sole proprietor ensure the quality and adaptability of their product or service line?

Ans: Communicate essential details about features, benefits, pricing, and product/service life cycle. Stay flexible and responsive to market demands and customer feedback.

Q2. What role does the marketing and sales strategy play in a sole proprietorship business plan, and what key components should be outlined?

Ans: The marketing and sales strategy is vital for creating a strong online and offline business presence. This plan should include details on branding, pricing strategy, promotional efforts, and the overall marketing budget. Additionally, the sales strategy should outline sales targets, channels, and pricing policies to ensure profitability. Together, they form a comprehensive approach to promoting and selling products or services.

Sole Proprietorship 101: The Easy Guide to Setting One Up

Published: October 17, 2022

For many, working for yourself sounds like a dream. If your goal is to own and operate your own business, you’ll need to set up a sole proprietorship.

Sole proprietors have complete control of their businesses — receiving all profits and managing their own liabilities. This guide explores how you can establish your own sole proprietorship.

• What’s a Sole Proprietor?

How to Start a Sole Proprietorship

Advantages of sole proprietorships, disadvantages of sole proprietorships, sole proprietorship business examples, position your new sole proprietorship for success.

Sole proprietorship is a type of business that is owned and operated by an individual (no partners involved) who pays personal income tax on business income.

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Sole proprietorships are not separate entities by law, so it’s considered one of the easiest types of businesses to start.

Unlike corporations or LLCs, you don’t have to register with the state. However, you must acquire appropriate permits and licenses to operate legally, and you are personally liable for debts, lawsuits, or taxes your company accrues.

Most businesses in the United States are sole proprietorships. Many entrepreneurs love sole proprietorships because of the ownership they have over business decisions and revenue. These businesses are also easy and cost-effective to set up.

So, how can you start a sole proprietorship? There’s an step-by-step guide for you below.

Before you start a business, however, it’s important to have a business plan. Here’s an easy-to-use business plan template to begin.

Now that you have the tools to create a business plan, let’s go over the definition of a sole proprietor and the types of sole proprietorships one would typically launch.

A sole proprietor is a person who has complete control over the revenue and operations of a business. In addition to taking home all profits, the sole proprietor is also responsible for all debts, lawsuits, and taxes their company accrues. If their business is sued, personal assets like their home, credit score, and savings are unprotected.

Types of Sole Proprietorships

A sole proprietor may operate as an independent contractor (a freelancer), a business owner, or a franchisee.

• Independent Contractor : An independent contractor is a self-employed sole proprietor who takes on projects on a contract basis with clients. They have the freedom to choose which clients they take on, but they are often subject to the processes and methods that the client requires.
• Business Owner: Business owners can also be self-employed sole proprietors. Unlike contractors, there is much more autonomy in how the work is completed for clients. The operation itself may even be more complex with employees and/or intellectual property.

Franchisee : Franchise owners may also be sole proprietors. The franchisee benefits from the guidance and business model of a larger brand. In exchange, royalties are paid to the franchisor.

If you want to launch a new business from scratch or you have a side hustle you want to convert into a full-time business, you should consider registering as a sole proprietorship. Here are some steps you can take to get started.

Step 1: Ensure a sole proprietorship is right for you.

First, is starting a sole proprietorship right for you? Or should you launch another type of business?

Choosing the right business structure is key to your venture’s success. As the SBA points out , “The business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk.”

Sole proprietorships, partnerships, limited liability companies (LLCs) , corporations, and cooperatives are just a few of the ways you can structure your business.

There are also notable differences in LLCs compared to S-corps . While sole proprietorships and LLCs are two of the most common business structures, there are key differences between them.

Sole Proprietorship vs. LLC

A limited liability corporation (LLC) provides the business owner liability protection and tax advantages. Meanwhile, sole proprietors bear personal liability for their businesses. Additionally, an LLC can be owned by investors, while a sole proprietorship is usually owned and managed by an individual.

Once you’ve determined a sole proprietorship is right for you and your business, it’s time to talk to the experts.

Step 2: Talk to your nearest Small Business Development Center.

Before you establish your sole proprietorship, reach out to your nearest Small Business Development Center . There, you can learn the steps your state, city, or county requires to operate your business legally.

Step 3: Choose a name.

Choosing a name is the fun part — researching whether or not it’s taken and trademarked is where things become difficult. Search the United States Patent and Trademark Office (USPTO) to learn whether your chosen name has been trademarked. If it hasn’t, consider filing your name with the USPTO to get a trademark on it, so no one else can operate under that name.

Step 4: Register your DBA.

As a sole proprietor, the legal name of your business is your personal name. However, if you want to operate under a different name, say, “Global Business Consulting Services,” you’d want to register a fictitious or "doing business as" name , also known as a DBA.

In many cases, you’re required to separate business and personal funds. A DBA is often necessary when opening a bank account or credit card for your business. Your state might also require follow-up steps after registration.

Most commonly, you’ll be required to publish the name you’ll be doing business under publicly — and then provide proof of publication to your local government.

A DBA also ensures no one else in your county is doing business under the same name. Bottom line? Register your DBA, and do it soon.

Step 5: Purchase a domain.

Once you’ve picked the perfect name, it’s time to go after a domain. For an easy client experience, your domain name should be the same as your business. Search to see if the domain you want is taken using these ICANN-accredited databases . Even if you’re not ready to build the website, reserve or buy your domain name so no one else can.

Step 6: Register for a business license.

Even sole proprietorships need a business license to operate, in most cities. Don’t skimp here. The fines for operating without a license can be steep. You might also need your business license to open a bank account — but more on that below.

Step 7: Check on other permits or licenses.

The fees associated with not having the correct licenses or permits can be debilitating for a young business. Be sure that you’ve gotten the correct federal licenses and permits and state licenses and permits . These might include:

• A health department permit for preparing or serving food
• A federal license for transporting animals
• A health and safety training for opening a daycare
• A certification exam to become a financial adviser
• A zoning permit to operate your business from home
• Registration with the state tax authority if you have employees or collect sales tax

Do the legwork upfront and find out what licenses and permits you need. The fees you’ll pay during this process are nothing compared to the fines you’ll pay if you haven’t filed the right paperwork.

Step 8: Get an employee identification number (EIN).

If you operate alone, you might not need an employee EIN and can operate and file taxes under your Social Security number. As soon as you hire an employee or set up a retirement plan, however, you must file for a federal employer identification number (EIN). It’s free and can be obtained online.

Step 9: Open a business bank account.

It’s important to keep personal and business expenses separate when running a sole proprietorship (especially if you get audited). Opening a business bank account ensures a certain level of protection for your business funds. This account also allows customers to pay with a credit card and make checks payable to your business. You can also build a good business credit history.

You want to be able to prove to the IRS that you’re running your business to make a profit. This ensures the losses you experience during the first few years will remain tax deductible.

It’s also wise to build a good credit history before starting your business. While credit cards can help you out in your company’s early days when cash flow is low, the interest adds up quickly and can easily become overwhelming.

A personal loan is often a better option. However, a good credit history is necessary for securing a loan of this type.

Step 10: Load up on insurance.

Because one of the biggest risks to starting a sole proprietorship is the liability, having adequate insurance is a must.

Consider property and liability coverage, auto insurance, health coverage, and disability coverage at the very least. This can get expensive, but it ensures you and your personal assets are protected from lawsuits and professional setbacks, should they arise.

Check out this SBA article to learn more about the coverage you need.

Step 11: Pay your taxes.

As a sole proprietor, you’ll pay income tax on all the income your business nets. File your sole proprietorship income taxes by using Schedule C on your Form 1040 . Then, add the income or losses your business incurred to the other income you record.

You can use any business losses to offset other sources of income, like a salary from your day job or a spouse. But be careful not to step into “ hobby business ” territory with the IRS. You must prove your business is not a hobby in order to lower your taxes. When your business becomes profitable, it might be time to file for corporate status or become an S corporation .

Remember, because you’re self-employed, your paychecks don’t have proper withholdings taken out at the time you’re paid. Instead, you can expect to pay quarterly estimated tax payments. You’ll then cover the difference or receive a refund for any shortage or overage come tax season.

Because of this, you should set aside money from each paycheck to cover those quarterly and annual expenses.

The main appeal of a sole proprietorship is the freedom and flexibility it provides for the owner. This is especially true of new entrepreneurship and people looking to scale their side hustle.

Whatever the situation is, sole proprietorship has many advantages. Here are a few common benefits.

1. Full Decision-making Authority

As a sole proprietor, you are fully responsible for making choices and decisions for your business. As opposed to a partnership or an LLC, you don’t need to consider the opinions of shareholders or legal partners. You are free to steer your business in any direction you think works best.

2. Easy to Set Up

A sole proprietorship is much easier to set up than other business forms.

As a sole proprietor, you don’t have to think about legal contracts with other business partners. You also don’t have to do other laborious tasks that other business enterprises require, like giving stock to shareholders or choosing a board of directors.

You do, however, have to get the necessary licenses and permits to legally run your business, such as sales tax permits and zoning permits.

The licenses and permits you’ll apply for depend on the type of business you want to run. Check with your local or state government to learn exactly which ones you’ll need.

3. Lower Up-front Cost

Starting a sole proprietorship is free for the most part. Of course, you’ll have to pay to register your business name, get your business domain, and get the necessary licenses or permits, but you won’t pay the $1,000 average cost of starting an LLC.

This is great if you’re working with a tight budget because you won’t have to invest a lot of money into the business before you begin operations.

4. Simple Tax and Lower Tax Rates

Sole proprietorships have fairly simple and straightforward tax requirements compared to other business entities.

In terms of tax filing, sole proprietorships are taxed as a pass-through business entity. This means that the business’ profits and losses are reported on your personal income tax return. So you don’t have to pay separate taxes for your business.

For example, if you use your own home as your business base, you won’t have to pay more money on space, utilities, and internet. This reduces your personal taxes. You might even get a tax refund when you file your personal tax return.

As a sole proprietorship, you can also take advantage of some tax deductions. For instance, the Tax Cuts and Jobs Act of 2017 allows sole proprietors to deduct 20% of their net income from their taxes.

Additionally, there’s no distinction between the owner and a sole proprietor. Therefore, the IRS does not require separate accounting records for the business — including balance sheets — as part of their tax return.

5. Full Control Over Revenue

As a sole proprietor, you’re in charge of all aspects of your business, including revenue. You decide how much you want to pay yourself and contractors (if you have any). You’ll also choose how much you want to pour back into the business.

As with all business models, sole proprietorships have disadvantages as well. Here are some of them:

1. Personal Assets Are at Risk

As a sole proprietor, you are responsible for the financial aspects of your business, including taxes, contractor wages, and any legal contingencies. What’s more, sole proprietorships don’t offer legal protection over your personal assets if you get into financial trouble.

This means that if your business is sued or you have to file for bankruptcy, the court has the right to seize your personal assets to cover these expenses. That includes your savings, home, cars, and other belongings.

Sure, insurance coverages can help with this, but they’re not foolproof.

2. Difficulty Raising Capital

While the initial costs of starting a sole proprietorship are low, raising capital to finance the business can be difficult. That’s because banks prefer to support incorporated businesses.

Banks consider the sole proprietorship model to be risky, as the owner’s personal assets are usually limited and can run out at any time. Financial institutions are usually reluctant to issue credit or give out loans to sole proprietors for fear that they won’t be able to repay them.

Sole proprietorships may also struggle to get buy-in from investors, as they’re not designed to have shareholders. Without loans and investments, it’s harder to take a sole proprietorship to the next level.

3. Self-employment Tax

As a sole proprietor, you are liable to pay a self-employment tax of 15.3% (12.4% in Social Security taxes and 2.9% for Medicare) on all income generated by the business.

While the 12.9% Social Security taxes are constant, the Medicare tax rate increases by 0.9% once you cross certain threshold levels. In the long run, this tax can become significant.

4. Perceived Lack of Professionalism

It’s not uncommon for potential investors and clients to view a sole proprietorship as less professional than a corporation or LLC. They may also be wary of doing business with an individual, as opposed to a separate legal business entity. You should keep this in mind if you might consider an LLC as an option for your business.

Sole proprietorships are a great choice for people who want to turn their side hustles into something a little more serious — and lucrative. A variety of businesses are operated as sole proprietorships.

Here are some common examples.

1. Web Developer

Web developers design websites for clients using web coding languages, such as HTML , CSS, JavaScript, PHP, and jQuery. An easier entry point into this field would be WordPress web development .

2. Digital Marketer

Digital marketers do anything from managing a brand’s social media accounts to improving a brand’s SEO . Be sure to specialize rather than offering all marketing services.

3. Virtual Assistant

Business owners are busy. They don’t want to hire an office assistant, especially because most tasks can be done online. Enter the virtual assistant.

As a sole proprietor running a virtual assistant business, you’d handle tasks such as bookkeeping and database entering for other business owners.

4. Daycare Operator

Daycare operators run small, affordable daycare facilities for parents who can’t afford expensive day schools or a dedicated nanny. A background education would be helpful before creating a daycare business.

You could, alternatively, found a dog daycare, or a daycare for the elderly.

5. Freelance Graphic Designer

Graphic designers create beautiful things: landing pages, brochures, flyers, and social media ads. As with digital marketing, you should specialize in either digital or print graphic design, and target certain industries that interest you. Creating a banner for a hair salon would be much different from creating one for an engineering firm. You’ll also need a graphic design portfolio.

6. IT Consultant or Computer Specialist

Have you ever run into IT problems? So do countless businesses. As an IT consultant running your own business, you would offer IT troubleshooting services to other companies. You’ll also resolve issues with both the company’s hardware and software solutions. Be open to traveling for this type of sole proprietor business.

7. Freelance Writer

As a freelance writer with a sole proprietorship, you would target brands that need content written for them. These may include nonfiction articles, news articles, blog posts, website pages, and social media ads. As with digital marketing and graphic design, consider specializing in one writing form.

8. Freelance Copy Editor

Freelance copy editors edit someone else’s writing for clarity, concision, and effectiveness. These editors proofread someone else’s work for errors. They also focus on the flow and cohesion of ideas.

You can either go into fiction or nonfiction copy editing. Alternatively, you can become a copy editor specifically for websites and blogs

9. Freelance Nonfiction Book Editor

Nonfiction book editors typically review highly technical or specialized material for flow, accuracy, and logic. These editors are different from other types because they exclusively specialize in manuscript-length works and have an advanced degree in the topic they specialize in.

10. Fitness Coach

Fitness coaching is a great choice if you have a passion for fitness. This type of sole proprietor typically targets gym goers — or those who’d like to start — to help them reach their fitness goals through a customized program. A degree in exercise science would be beneficial, as well as a certification in fitness coaching.

11. Housekeeper

Housekeepers clean houses with more thoroughness than a busy homeowner would. Tasks include mopping, sweeping, taking out the trash, washing dishes, and doing laundry. For optimal success as a sole proprietor, you should target a small geographical area to pitch your housekeeping services.

12. Landscaper

Landscapers mow lawns, trim bushes, check the soil’s health, and do everything related to backyard and front yard maintenance. You can offer something simple, such as lawn mowing, and slowly add more services as you gain more advanced land care knowledge.

13. Caterer

Like cooking? Then a catering sole proprietorship may be for you. Caterers cook large amounts of food for other people’s events and typically take care of delivery and setup. Instagram is a great platform to spread the word about your business.

An alternative sole proprietorship for those who enjoy cooking would be a baking business. You can either specialize in sweets or savory goods, or offer a mixture of both. While we often associate bakers with brick-and-mortar bakeries, you can operate this business out of your home and arrange local pickups.

15. Accountant

As a freelance accountant, you would work with small-business owners and audit their inflow and outflow of cash. Be sure to be proficient in at least one accounting software, such as QuickBooks or FreshBooks.

16. Tax Preparer

Tax preparers target individuals who find tax return documents inaccessible and difficult to fill out. This is one of the easiest sole proprietorships to launch, as there are no education requirements. A course in tax preparation is all you need.

17. Document Assistant

Document assistance is in a similar vein to tax preparation. You would help individuals fill out highly complicated forms — such as immigration applications, visa applications, and unemployment claims. You may also submit them on your client’s behalf.

Proficiency in another language would be beneficial, as those who need assistance are typically non-English speakers.

18. Resume and Cover Letter Writer

Resume and cover letter writers serve those who have a disparate collection of job descriptions, roles, and skills. They then turn the information into an effective resume. A background in writing would be beneficial if you plan to launch this type of sole proprietorship.

19. Event Planner

As a sole proprietor with an event planning business, you would handle all facets of the event planning process. That includes finding a venue, caterer, decorator, DJ, and event furniture supplier. You’ll typically handle part of the event setup as well. One particularly lucrative specialization is wedding planning.

20. Photographer

Freelance photographers take photos and video footage of virtually anything that clients want to capture. As with most business types on this list, you should specialize. A corporate photographer takes photos of a company’s staff. A wedding photographer takes photos of a wedding in an artful way. A maternity photographer takes maternity shoots. These three require different skill sets, so choose the one that best matches your background.

21. Standardized Test Tutor

As a standardized test tutor, you would coach high school and college students to improve their scores on the SAT, ACT, GRE, GMAT, or LSAT standardized tests. You should specialize in one or two tests.

Be sure to advertise the high score you received on your website. A background in education would be helpful.

22. Translator

You can start a translation business if you have advanced or native proficiency in a language other than English. Businesses, churches, and schools need translators to communicate with non-English-speaking clients or groups. You can start this type of business without a degree, but certification would be beneficial.

Starting a business as a sole proprietor is one of the biggest choices you’ll ever make. Though the risk is great, so is the reward. The best part is that you can start it on your own without leasing a building, hiring others, or requiring expensive training. With the steps shared in this post, you’ll build a strong foundation to ensure lasting success.

Editor’s note: This post was originally published in September 2018 and has been updated for comprehensiveness.

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How to Write a Business Plan for a Sole Proprietorship

• Small Business
• Business Planning & Strategy
• Write a Business Plan
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How to Write a Construction Business Plan

How to write a business plan template for a cable channel, how to evaluate the feasibility of a business.

• Preparing a Three-Year Business Plan
• What Is the Role of a Business Plan in Getting Venture Capital Funding?

A business plan for a sole proprietorship is just like any other business plan. The main difference in business plans, in general, is the purpose. If you are writing a plan to organize your existing small company, focus on how your company operates and your goals for the future. If you will use it to obtain funding, your focus should be how you will make profits by supplying a commercial need.

Research Your Market

Start your research by describing your target or best customers by gender, age, income level, buying habits and residential location. Then look at your competition. Compare your company to your competition in terms of product offerings, service, prices, marketing, brand image and profitability. This gives you information for establishing the future direction you want your company to take, goals for expansion, product lines, service improvements, marketing to increase market share and ways to increase profitability. If you are a startup business, researching your market helps you develop your business idea, initiate good practices from the start and position your launch to attract the attention of your target market. It also gives you an argument that your company can fill a niche that will result in profits, which is important if you are going after funding.

Sole Proprietorship

There are special problems faced by a sole proprietorship operated by one person. The biggest problem is that you can't do everything. While examining your market, look for outside services that are geared to helping you compete with larger companies. These might be telephone answering services and business center offices that supply office space, office machines, administrative services and conference rooms. The Internet can provide inexpensive, simple-to-use marketing services and other outsourced services to expand your business reach. These are important considerations for the operations section of your business plan.

Develop Your Idea

Use your market research to solidify your vision for your company. Write a one or two sentence mission statement that addresses what you do, for whom, when, where, why and how. Then build on that. Establish in detail how the company operates, your suppliers, sales agents, cost of goods, price points, marketing strategy and growth plans. The more detailed you express this vision, the more likely you will see holes in your plan, which is one of the benefits of writing a business plan; it enables you to solve problems before you encounter them.

Research Your Costs

Make a list of every expense you encounter including rent, employees, travel, legal services, business licensing, insurance, inventory, sales costs, marketing costs and delivery costs. Business plan software is a good source of spreadsheet programs that allow you to plug in these costs to see what kind of revenues you must generate for profitability. These programs also print out a good presentation of your financial projections for use in obtaining funding.

Write the Plan

Your business plan should be shorter than 50 pages and should include the following sections: executive summary, which is written last; description of industry, including how you fit in; business model, describing your products and services; target market, describing who will buy from you and why; marketing model, describing how you will reach your target market; revenue model, estimating revenues and discussing how you will achieve those estimates; management, listing the bios and skills your managers bring to the company as well as your outside advisory board; and your financial projections, which consist of spreadsheets including a profit and loss statement, sales projections, personnel projections, cash flow and balance sheet. Include a discussion of how you arrived at these financial projections and the assumptions you used.

• SBA.gov: How to Write a Business Plan
• Entrepreneur: An Introduction to Business Plans

Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.

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Start » startup, how to choose the right business entity: sole proprietorship.

A sole proprietorship is the most common U.S. legal business structure, with minimal startup costs and various tax perks.

The Internal Revenue Service (IRS) requires every business to classify itself as a specific type of legal entity. These entities come in five forms – partnership, corporation, limited liability company (LLC), S corporation and sole proprietorship – and each comes with its own legal and tax considerations.

Declaring your business as a sole proprietorship is easy to set up, and if you are working as a consultant, freelancer or other singular business, you may already be operating as one without realizing it.

If you're interested in establishing a sole proprietorship (or if you're already running one), here's a basic overview of what this legal business structure entails.

What is a sole proprietorship?

A sole proprietorship is the simplest and most common business structure in the United States. Sole proprietorships are run by a single individual who is responsible for all business assets, profits and liabilities.

Because this type of entity is so easy to form, administrative startup costs are minimal. The law does even not require you to set up a formal structure before launching your business. If you are the only owner and are operating under your legal name (not under a DBA name), you are automatically considered a sole proprietor by the IRS. The only legal expenses that may apply are for any licenses and permits you may need, depending on your industry.

[Read: A Guide to Business Licenses and Permits ]

Pros and cons of sole proprietorship

Two of the many benefits of a sole proprietorship include:

• Full control over the business . Since you are the sole owner, you make all of the business decisions.
• Simple tax preparation . Known as pass-through taxation, your sole proprietorship does not need to be taxed separately from your Social Security number, which means that you simply need to report your business profits and losses to the IRS on a Schedule C form and Form 1040 and file your taxes as normal. As an added bonus, sole proprietor tax rates are the lowest among all business structures.

Of course, some of these perks can also lead to potential disadvantages, including:

• Full financial responsibility . As the sole owner and decision maker, you alone are liable for any financial losses and debts that may occur within your business.
• Difficulty with finding investors . The SBA also notes that it's difficult for sole proprietors to raise money. Banks view sole proprietors as particularly risky since the business's success and failure depends on a single person. You're also unable to sell stocks in a sole proprietorship, which may limit your opportunities to bring on investors .

When your business is just starting out and plans are to remain as a business of one, sole proprietorship makes sense.

Who should operate as a sole proprietor?

There are certain types of businesses that are well-suited for sole proprietorship status:

• Business consultants and speakers . Professionals in this space may take on a few gigs a year, or operate as a full-time business.
• Freelancers. Photographers, copywriters, web developers and more are typically a business of one contracted on a per-project basis by their clients.
• Home health care specialists. Home care assistants typically work as contractors and provide services to clients in their homes.
• Professional cleaning . Residential and commercial cleaning can easily be done as a side job or a full-time business.
• Landscapers . These businesses often begin with one person who does all the work. As demand increases, the sole proprietor may hire employees or outside contractors for assistance.

Businesses like these are ideal sole proprietorships because they are inexpensive to start and typically don’t need investors or financing to cover overhead expenses like storefronts or specialized equipment. They are also primarily built on the owner's personal reputation and skill set.

Is a sole proprietorship right for your business?

When your business is just starting out and plans are to remain as a business of one, sole proprietorship makes sense. If you have big growth plans for your business, you may wish to consider a different legal structure, since sole proprietorships can come with financial, business and legal risks. However, if you plan to keep your business small, you can operate as a sole proprietorship indefinitely.

[Read: Getting Ready to Launch? How to Choose the Right Business Structure ]

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How to write a business plan in 10 easy steps

Does writing your first business plan sound a bit daunting? You’re not alone. Many startups struggle with this essential step in getting a small business off the ground. If you need a helping hand with writing a business plan, we’ve broken it down into ten easy steps.

Before we get started, let’s understand why writing a business plan is such an important ingredient in the recipe for startup success.

What is a business plan?

A business plan is a document where you record everything you plan to achieve, state how you’re going to do it and detail the resources you’ll need to succeed. It includes information about your vision for the business, the products or services you plan to provide and financial projections.

From outlining your goals and organisational structure to explaining your marketing strategy, your business plan should keep you on track and help you avoid potential pitfalls. The document doesn’t have to be complicated but it does have to be well thought through and based on strong research.

Why do I need to write a business plan?

Writing a business plan is the first step to startup success. Research shows that business owners who write a business plan are more likely to succeed than those who don’t .

But why? How can a single document make so much difference?

• Writing a business plan helps you think through every element of your business in advance, so there should be no unexpected surprises to derail you along the way.
• Referring to your business plan during your first year of trading can help you stay on track, prioritise your resources and measure progress against your goals.
• A business plan is essential if you hope to secure startup funding, such as a Start Up Loan or other investment.

How to write a business plan

Ready to get stuck in? Use the ten sections below to write your business plan and you’ll be one step closer to starting your dream business.

• Cover page and contents
• Executive summary
• Mission, vision and goals
• Products and services
• Market analysis
• Marketing plan
• Organisational details
• Financial plan

Before you start, remember, your business plan needs to be a living document: something that articulates your vision to potential investors and employees. So keep it simple and don’t use complicated jargon.

Most importantly, be realistic. Base your plan on market research and sensible financial projections. Underestimating costs or overestimating demand will only harm your chances of success, and it will undermine your credibility with potential funders.

With that in mind, let’s get started.

1. Cover page and contents

Despite the saying ‘don’t judge a book by its cover’, it’s best to be on the safe side! Prepare a smart cover page that includes your company name, a high-resolution image of your logo, your name and contact information.

Once you’ve completed your business plan, you can insert a contents page in between the cover page and executive summary to list key sections and page numbers.

2. Executive summary

The executive summary communicates the key points of your business plan. This may be the only part of your business plan that someone will read, so it needs to summarise the rest of the document in a single page and encourage them to read on.

Potential funders are busy people, so get straight to the point and use concise paragraphs . Cover the headline news about your business, namely:

• What your business does
• Your products or services
• What makes you unique ( your USP )
• The target market and projected demand
• A brief financial overview

As this section is an overview of everything else in your business plan, you should write this last, once the rest of the content is finalised.

3. Mission, vision and goals

Why does your business exist and what do you want to achieve? You can answer these questions with your mission, vision and goals.

Your mission statement is a short and inspiring summary of why your business exists. It’s a way to communicate what you do and provide a focus for your business activities. It can even help you plan and prioritise, by reminding you of your core purpose.

For example, a commercial cleaning business might have the following mission: ‘To make businesses a better place to work by providing high-quality commercial cleaning that goes above and beyond the industry standard.’

For more inspiration, take a look at these examples of mission statements from successful businesses .

Your vision is how the world will look if you’re successful in your mission. Consider the ultimate benefit your business will bring to its customers. How do you want people to see your business?

Express the dream scenario, whether it’s to be the leader in your market or to make a difference in your customers’ lives.

For example, our cleaning company’s vision might be ‘Higher standards, healthier workplaces, happier staff’. This communicates the company’s USP (higher standards) and the benefit they bring to their customers (healthier workplaces, happier staff).

Goals are an essential part of your business plan. These aren’t just guesses about what you might like to do. Strong business goals are based on what you need to deliver in your first year of business and how you plan to achieve that.

Remember, goals always need to be SMART : specific, measurable, attainable, realistic and time-bound.

For example, our cleaning firm might have a goal to recruit 24 new clients in their first year. That’s a great start because it’s definitely SMART.

Next, they’ll need to break that down into smaller, more manageable goals, to help them achieve it. For example:

• To have a basic website in advance of launch, and online booking within three months
• To grow a social media audience comparable to their nearest competitor within the first six months
• To distribute flyers to 250 local businesses each month and follow up with a phone call within two working days

Each of these goals could be broken down even further to create a month-by-month work plan for the business. This makes it much easier to stay on track and prioritise time effectively.

4. Products and services

Next, it’s time to talk about what your business is actually going to sell. Whether that’s products or services, describe them in detail. Consider information like:

• What the product or service is
• Unique features
• Customer need
• Whether you’re filling a gap in the market
• Why customers will choose you over competitors
• Where customers will buy it
• Where customers will use or experience it
• Pricing strategy (what you plan to charge and why)

You want to paint a clear picture of what you’re selling, why people will choose to spend their money with you and what benefits they get as a result. Thinking this through will really help when you start to promote your business.

5. Market analysis

This, alongside your financial projections, is the most important part of your business plan. It’s where you’ll record the results of any market research you’ve conducted. And if you want to have a successful startup, market research is a must!

Below is a quick rundown of basic market research. Once you’ve conducted it, use what you’ve discovered to demonstrate the potential of your product or services. Use graphs and charts to make it easier to digest.

Identify your target market

Firstly, you need to decide who your target market is. Who exactly will buy your products or services? Are they individuals or businesses? Where are they based? What income group do they belong to? This will help you plan effective pricing, marketing and sales.

For example:

• Young professionals aged 21-35 in the Liverpool region
• UK-based food manufacturers
• Cost-conscious fashion fans in north-east England

Assess the size of your target market

Next, you need to work out how many people there are in your target market and how many, realistically, are likely to become customers. There are lots of sources of information to help you, including census information and commercial reports.

Survey your target market

Market research with your target customers can provide valuable insights that will help hone your business plan. For example:

• Do they like the product?
• What would they be willing to pay?
• Who else might they buy from?

There are lots of ways to solicit opinion: from online surveys to in-person focus groups. Find out about different market research techniques and choose what’s right for you.

Identify your place in the market

Once you’ve researched your target market, you need to understand your place within it. Who are your competitors? What are your strengths and weaknesses? Market analysis typically includes:

• SWOT analysis - looking at your strengths, weaknesses, opportunities and threats
• PEST analysis - political, economic, social and technological factors that might impact your business
• Competitor analysis - who you’re competing against and how you compare

6. Marketing plan

Once you’ve completed your market analysis, you’re well equipped to write your marketing plan.

Marketing is made up of different elements which are sometimes referred to as ‘the four Ps’:

• Product: what are you selling and what’s the USP?
• Place: where will you sell your product to maximise access to your target market?
• Price: what will you charge for your product to appeal to your target market?
• Promotion: what’s your strategy for reaching your target customer?

Your marketing plan should explain how you’ll combine these different elements to stand out and maximise your appeal to your target market.

Consider your budget and how you will measure success. If you’d like to know more, check out this beginners’ guide to startup marketing .

7. Operations

This is where you go into detail about what you’ll need to deliver your product or services.

For relatively simple businesses, such as offering freelance services, this might be uncomplicated. But for other businesses, such as manufacturers or retailers, it can require more advance planning. Consider factors like:

• Ingredients, materials and supplies
• Suppliers and distributors
• Routes to market
• Technology, including accounting software such as FreeAgent

This will prepare you for the reality of setting up your business, the relationships you’ll need to develop and the potential costs you’ll incur.

It will also help funders understand how you plan to spend their investment and have confidence that you understand what you’re proposing.

8. Organisational details

This is where you record information about how your company will be structured and run. This section should provide clarity about different roles within the business. It should also give any investors confidence in your ability to deliver.

Include information like:

• Your business structure ( limited company , sole trader or Limited Liability Partnership )
• When you were established and began (or plan to begin) trading
• Your management team, their roles, qualifications and experience - even if it’s just you!
• Any actions you’ve taken as a business so far, such as registering patents or copyright
• Your registered address and contact details

9. Financial plan

Now it’s time to outline your business finances. Investors will be reading this section carefully, so make sure to double-check your figures.

Many startups fail because of poor financial planning - such as failing to understand the impact of cashflow on a fledgling business - so this stage is really important.

As a new business, you’re likely to incur startup costs before you start making any sales, so you’ll always need enough money in the bank to keep you afloat.

A financial plan typically includes:

• Profit and loss (income statement) - the income statement allows your reader to see your revenue and expenses. If you’ve only just started your business, this can be a forecast.
• Cashflow statement - this is an estimate of what you expect to spend and receive over a period of time.
• Balance sheet ( assets and liabilities ) - outline what you own and what you owe.

If you’re unclear on any of the above, it’s worth speaking to a bookkeeper or accountant.

Software such as FreeAgent can help you keep an eye on your business finances and prepare for Self Assessment.

10. Appendix

The appendix is a section where you can include additional information to support your business plan. It lets you provide extra detail for people who are interested, without making the body of your business plan too bulky.

Here, you can include numbers in more detail, your CV, legal agreements and any additional product information, such as market data, imagery, copy and designs.

Congratulations, you’ve made it. You’ve written your business plan, gone back to complete the executive summary, and you’re ready to share it with the world.

If you’re going to use your business plan to apply for funding, it’s a good idea to print a copy and professionally bind it, so it looks smart and credible.

Even if it’s just for your reference, keep a copy of your business plan to hand and refer to it regularly. Think of it as your roadmap to success.

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Business.govt.nz, in association with, becoming a sole trader.

Being a sole trader is an easy way to start a business, work for yourself or work as a contractor for someone else, but isn’t for everybody. If you want to become a sole trader or you’re already one but aren’t sure what it involves, here’s where you can find tips and information to help.

Starting out

It’s relatively easy to start a business as a sole trader — you don’t need to go through a legal process or to register yourself or your business with a government agency.

Going it alone means you control your business, and get to keep all the profits. You get some of the same benefits employees get, for example paid parental leave. But you will miss out on other things, for example paid sick leave or bouncing ideas off teammates.

Being a sole trader appeals to a wide range of people, including:

• tradespeople, for example plumbers, house painters and electricians
• contractors who work for other organisations, for example IT consultants and builders 
• small business owners, for example hairdressers and landscape gardeners
• people who turn a hobby into a business, for example artists and furniture makers. 

Talk to people in the industry you want to work in to find out if it’s for you.

If you want to sell your business or get investors at some stage, it’s best to have a company structure from the start. Use our Choose Business Structure tool to help you decide.

Business structure overview

Is contracting right for you?

Choose your business structure

Is sole trader the best structure for your business? Use our Choose Business Structure tool to check that it’s right for your business’s needs. Just three quick questions and you’re on your way.

Before you start

Make sure you have a clear idea of why you want to be a sole trader and what you want from it. Being a sole trader can be a flexible way to work. You’re your own boss. But you may also be your entire staff, too. Use our tips and tools to test your business idea or work out what you want to earn contracting.

Talk to people who have chosen the structure you’re considering. Think about getting an advisor, for example a lawyer or accountant who specialises in your industry.

Questions to ask before you start

Types of advice you’ll need

Government help for sole traders

What you need to do

To become a sole trader you must have:

• a personal IRD number for paying income tax and GST
• government licences and permits that your business needs
• qualifications or registrations for your trade or profession.

You’ll need to tell Inland Revenue you’ve become a sole trader and you’ll need to register for GST if you think you will earn over $60,000 a year.

You can also get a New Zealand Business Number (NZBN), a unique identifier, which any business in New Zealand can have. Using it will speed up your interactions with government, suppliers and customers, and other businesses, for example when sharing invoicing details.

Get an NZBN (external link) — New Zealand Business Number

Follow our easy checklist when setting up as a sole trader.

Sole trader checklist

Intellectual property.

It’s never too early to think about intellectual property (IP), which includes your logos, trade marks and inventions. When you protect IP you’re safeguarding the time, money and effort you put into building a business.

Sole traders can’t advertise using their personal name if someone has already registered it as a trade mark in the same industry.

IP will be important throughout your business’ lifespan. Make sure you understand what it is and why it’s important.

Check whether your name has been registered as a business name, trade mark, web domain or social media username with our ONECheck tool.

Why IP is important

Simple steps to protect your IP

Anti-money laundering rules

You might need to meet rules, designed to detect and prevent money laundering and the financing of terrorism if you’ll be doing one or more of these tasks:

• managing money or assets for clients
• providing trust or company services
• selling real estate
• providing conveyancing services
• handling large amounts of cash.

These rules affect the records you need to keep and how you must identify customers.

People often become sole traders because they have certain skills that they want to make a living from. However, you can’t be an expert in all areas of business, for example day-to-day finances or business planning, as well as your specialist area — and you shouldn’t have to try to be. Think about getting advisors, such as accountants, mentors and lawyers, to help you from an early stage.

How business advisors can help

Don’t be surprised if your accountant or lawyer asks to check your ID.

It’s to comply with anti-money laundering rules.

When you start out as a sole trader, you automatically get ACC personal injury cover from day one. It’s called CoverPlus. What you pay will be based on the type of work you do and your liable earnings.

You can choose to change to CoverPlus Extra which gives you more control over how much of your income you want ACC to cover, and means you can lower the levies you pay.

Your first levy invoice will arrive after the end of your first year in business. After that, you’ll be invoiced once a year, usually in July or August.

Types of cover for self employed (external link) — ACC

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Types of Small Business Structures in the UK

Are you thinking about starting a business? These are the most common business structures — including their tax implications and how to get started.

Small Business Structures in the UK

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Some business structures are easier to start than others, which one works for you depends on various factors.

Are you ready to start a small business ? First, you must determine the best business structure for your company. The United Kingdom has four main types of business structures: sole traderships, partnerships, limited companies, and limited liability partnerships.

Different business structures provide different benefits. While a sole tradership is easy to set up and requires minimal paperwork, a limited partnership may offer additional financial protections or tax benefits. Below, we explore the different business structures in the UK, giving you insights into their main pros and cons, tax responsibilities, and guidance on how to set each one up.

The Bottom Line

Before you can begin trading as a business in the United Kingdom, you must choose your business structure. There are several different business structures in the UK, including sole traderships, partnerships, limited companies, and limited liability partnerships. Each business structure has its own pros, cons, tax liabilities, and legal requirements.

However, the most common business model is the sole trader, which is typically the easiest and fastest for those just starting out.

Sole Trader 

The sole trader is the most common business model. Over 3.1 million sole proprietorships exist in the UK , comprising 56% of the business population.

A sole tradership is typically the easiest to business structure to set up because it involves less paperwork, legal responsibilities, and lower startup costs. However, the biggest drawback to being a sole trader is that you take on personal responsibility for all business debts.

Typically the easiest and fastest way to begin your own business

Often comes with less paperwork and administrative responsibilities than other structures

Generally lower startup costs than other business forms

Your personal finances are at risk because you are personally liable for any business costs

If you are a high earner, then you may pay more tax than other business structures

Tax Implications and Responsibilities

As a sole trader, you must keep business and expense records, as well as submit a Self Assessment tax return each year.

Most locations in the UK require you to pay Income Tax on any profits you earn over £12,570, a figure known as your personal allowance. The amount you’ll pay ranges from 20% to 45%. Sole traders must also pay Class 2 and Class 4 National Insurance. In addition, if you reach a turnover of over £90,000 per year, you’ll also need to register for Value Added Tax (VAT).

How to Get Started as a Sole Trader in The UK 

As we noted above, setting up as a sole trader is relatively easy. You should inform HMRC that you’ve begun trading as soon as you can, though the official deadline to register for Self Assessment is 5 October. You can notify HMRC by registering for Self Assessment via their online website .

Partnership

With a partnership, you’ll enter into business with one or more partners. You’ll each share responsibility for the business’s ownership, liabilities, and profits. A partner could be an individual or a “legal person,” such as a limited company.

A partnership has several benefits: you’ll share financial responsibilities, administration, and liability with your partners. Similarly to sole tradership, a partnership is also quicker and easier to set up than more complex business structures. However, this type of business can leave you more vulnerable to your partners' mistakes, and conflict amongst partners could derail your business.

Support and shared liability with business partners

Easy to set up when compared to other business structures

Less administrative tasks than other types of businesses

Vulnerable to partner fallouts or differences of opinion

Less personal autonomy than sole tradership

Each partner must register as self-employed and submit their own annual tax return. Each partner is legally entitled to their share of the business’s profits, must help cover bills and expenses, and is liable for their share of the business’s losses.

The rates of tax you will pay as a partnership are the same as those for sole traders. In addition, you’ll also need to register for VAT if you make over £90,000 per year.

How to Get Started as a Partnership in the UK 

To set up a partnership, you must:

• Choose a Business Name: Note that you can not choose offensive names, the same as an existing trader mark, or include a variation of “limited” in the title.
• Select a Nominated Partner: This partner is responsible for keeping business records and managing the partnership’s tax returns. 
• Register with HMRC: Your nominated partner can register for Self Assessment with HMRC online.  

Limited Company (Ltd)

Most limited companies are either ‘limited by shares’ or ‘limited by guarantee’. In either case, this type of company structure ensures that the company itself is legally separated from the people who run it (including keeping company and personal finances separate). Because of this separation, the limited company can also enter into a partnership, as mentioned above.

The administrative requirements of a Limited Company are more demanding than those of a sole trader or partnership. You must regularly file your accounts and pay Corporation Tax. You are also required to keep strict documentation, including creating in-depth financial of every transaction. Failure to meet these requirements may result in a £3,000 fine by HMRC or disqualification as a company director.

Your company’s information will also be publicly available via Companies House, giving you less privacy than some other business structures.

Business and personal finances are separate, meaning you’re not personally liable for business debts or legal costs

Elevated professional status when compared to a sole trader; can potentially help you bring in more clients

The resulting limited company can enter into separate business partnerships

Can be more tax-efficient

Your information is publicly available via Companies House

Heavy administrative burden

Unlike sole traders or partnerships, limited companies are not required to pay income tax or direct national insurance. However, they are required to pay Corporation Tax—25% of their net profits. As sole tradership can come with higher tax payments, a Limited Company may provide additional tax benefits.

You must also pay Employers' National Insurance contributions if you employ staff (including yourself in a Director role).

How to Get Started as a Limited Company in the UK

Here are the steps to set up a Limited Company :

• Choose a Name: You must follow several rules, including avoiding offensive names or registering a “same as” name (a name similar to another registered company). 
• Choose Directors: Directors have several key legal responsibilities, such as keeping strict records, reporting company changes, filing accounts and tax returns, and paying taxes. 
• Decide on Shareholders or Guarantors: For companies limited by shares, the shareholders' responsibilities for the company’s financial liabilities are limited to the amount that the shareholder has agreed to pay for the shares. This usually applies to for-profit companies. For companies limited by guarantee, there are no shareholders. Instead, the company is owned by guarantors who agree to pay a certain amount towards company debts. This is more typical for not-for-profit companies that invest profit back into the company. You must select at least one shareholder or guarantor who can act as a company director.
• Identify PSCs: You must also identify people with significant control (PSC) over your company. This includes anyone with voting rights or owning more than 25% of company shares. 
• Prep the Relevant Documents: You must prepare documents with recorded agreements on how your company will be run. 
• Check the Records You Need to Keep: Detailed records about your company need to include financial and accounting information. 
• Register the Company: Finally, you must register your company with an official address and a Standard Industrial Classification (SIC) code, which identifies what your company does and its primary industry.

Limited Liability Partnership (LLP)

You can set up a limited liability partnership with two or more individuals or legal entities. Just like a regular partnership, each person or entity is entitled to a percentage of business profits. Similarly to the owners of a limited company, those in a limited liability partnership have a limited liability — only amounting to the amount you invest in the business.

As with a Limited Company, your business information is made public via Companies House, giving anyone access to your account records.

The bottom line: An LLP offers protection for your personal finances. With an LLP, you’re only liable for your company share and are personally protected from any business debts that may arise. However, if you choose an LLP, you can’t keep your profits beyond the financial year. You’ll also typically deal with high administrative costs.

Separate business and personal finances

Only liable for debts up to the amount you invested

You may pay less tax than you would if you were a sole trader

Your business information is publicly available

High administrative costs

Yearly profits must be allocated to members in the year they are realised

The first rule of an LLP is that you must always have two designated members. Designated members take on more responsibilities than standard members, such as keeping accounts.

Unlike a Limited Company, an LLP is not a separate legal entity and is not taxed. Instead, members distribute profits and pay tax on their share by filing a Self-Assessment tax return with HMRC.

As such, you must register your LLP with HMRC for Self-Assessment and VAT (if you earn over £90,000 per year), maintain accounts, file returns, and pay tax. You must report any company changes to Companies House and HMRC, as well as comply with any additional applicable laws and regulations.

How to Get Started as an LLP in the UK

• Choose a Name: Once you’ve chosen your name, you must include your business name and all partners’ names on any official paperwork, such as your invoices. 
• Register Your Address: Your registered office address is your LLP’s “official” address. This should be where you’ll receive all written correspondence. 
• Register Your LLP: Next up, you need to register your LLP. You can do this using approved third-party software, by post, or via a formation agent. 
• Make Your LLP Agreement: You’ll also need to create an LLP agreement — where you’ll share details on how you’ll run your LLP, profit sharing, and responsibilities. All members must sign off on your LLP agreement. 

The UK's main business organisations are sole traderships, partnerships, limited companies, and limited liability partnerships. As this guide outlines, each has its own benefits, tax requirements, and legal responsibilities.

The sole trader is the most common business structure in the UK. Over three million sole traders currently account for over 56% of all businesses.

A sole tradership is typically the easiest business structure to set up and run in the UK. It typically comes with less paperwork, legal complications, and start-up costs than other types of business structures.

The best business structure depends on various factors, including personal liability, tax and legal requirements, and administrative responsibilities. While a sole proprietorship is the easiest to start and has less red tape, business structures like a limited company come with less financial risk, as your personal finances are separate from your business finances.

Tags: entrepreneurship , small business , United Kingdom

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When you need to set up as a sole trader

A sole trader is a type of business. You can be a sole trader as your only job or at the same time as working for an employer.

You will need to set up as a sole trader if the following apply: 

• you’re running your own business as an individual
• you work for yourself

This is different from owning a limited company or being in a partnership .

Part of Set up as a sole trader: step by step

Step 1 : check if being a sole trader is right for you.

• You are currently viewing: Find out more about becoming a sole trader

Step 2 : Choose your business name

• Check the rules for naming your business

Step 3 : Check what records you need to keep

When you start trading you must keep records. This will help you work out your profit or loss for your tax return.

• Find out what business records you need to keep

Step 4 : Register as a sole trader

• Check how to register as a sole trader

Step 5 : Check if you need to register for VAT

• Find out more about when to register for VAT

Step 6 : Plan for your tax bill

You may need to pay Income Tax on your profits and may need to pay National Insurance contributions.

• Get an estimate of how much you will need to pay
• Find out more about Income Tax rates
• Find out more about National Insurance rates

Step 7 : Get help and support

• Sign up for business support emails
• Join a webinar or watch a video to learn more about your responsibilities
• Find out how to choose a tax agent if you want to use one

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Out of the Centre

Savvino-storozhevsky monastery and museum.

Zvenigorod's most famous sight is the Savvino-Storozhevsky Monastery, which was founded in 1398 by the monk Savva from the Troitse-Sergieva Lavra, at the invitation and with the support of Prince Yury Dmitrievich of Zvenigorod. Savva was later canonised as St Sabbas (Savva) of Storozhev. The monastery late flourished under the reign of Tsar Alexis, who chose the monastery as his family church and often went on pilgrimage there and made lots of donations to it. Most of the monastery’s buildings date from this time. The monastery is heavily fortified with thick walls and six towers, the most impressive of which is the Krasny Tower which also serves as the eastern entrance. The monastery was closed in 1918 and only reopened in 1995. In 1998 Patriarch Alexius II took part in a service to return the relics of St Sabbas to the monastery. Today the monastery has the status of a stauropegic monastery, which is second in status to a lavra. In addition to being a working monastery, it also holds the Zvenigorod Historical, Architectural and Art Museum.

Belfry and Neighbouring Churches

Located near the main entrance is the monastery's belfry which is perhaps the calling card of the monastery due to its uniqueness. It was built in the 1650s and the St Sergius of Radonezh’s Church was opened on the middle tier in the mid-17th century, although it was originally dedicated to the Trinity. The belfry's 35-tonne Great Bladgovestny Bell fell in 1941 and was only restored and returned in 2003. Attached to the belfry is a large refectory and the Transfiguration Church, both of which were built on the orders of Tsar Alexis in the 1650s.  

To the left of the belfry is another, smaller, refectory which is attached to the Trinity Gate-Church, which was also constructed in the 1650s on the orders of Tsar Alexis who made it his own family church. The church is elaborately decorated with colourful trims and underneath the archway is a beautiful 19th century fresco.

Nativity of Virgin Mary Cathedral

The Nativity of Virgin Mary Cathedral is the oldest building in the monastery and among the oldest buildings in the Moscow Region. It was built between 1404 and 1405 during the lifetime of St Sabbas and using the funds of Prince Yury of Zvenigorod. The white-stone cathedral is a standard four-pillar design with a single golden dome. After the death of St Sabbas he was interred in the cathedral and a new altar dedicated to him was added.

Under the reign of Tsar Alexis the cathedral was decorated with frescoes by Stepan Ryazanets, some of which remain today. Tsar Alexis also presented the cathedral with a five-tier iconostasis, the top row of icons have been preserved.

Tsaritsa's Chambers

The Nativity of Virgin Mary Cathedral is located between the Tsaritsa's Chambers of the left and the Palace of Tsar Alexis on the right. The Tsaritsa's Chambers were built in the mid-17th century for the wife of Tsar Alexey - Tsaritsa Maria Ilinichna Miloskavskaya. The design of the building is influenced by the ancient Russian architectural style. Is prettier than the Tsar's chambers opposite, being red in colour with elaborately decorated window frames and entrance.

At present the Tsaritsa's Chambers houses the Zvenigorod Historical, Architectural and Art Museum. Among its displays is an accurate recreation of the interior of a noble lady's chambers including furniture, decorations and a decorated tiled oven, and an exhibition on the history of Zvenigorod and the monastery.

Palace of Tsar Alexis

The Palace of Tsar Alexis was built in the 1650s and is now one of the best surviving examples of non-religious architecture of that era. It was built especially for Tsar Alexis who often visited the monastery on religious pilgrimages. Its most striking feature is its pretty row of nine chimney spouts which resemble towers.

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