Solopreneur

Ditching the traditional nine-to-five to be one’s own boss has its appeal. But is it best to be an entrepreneur or a solopreneur? Each comes with its share of challenges, risks and rewards. Ultimately, individuals must decide how much autonomy and help they want along the way. If calling all the shots and going the distance alone sounds alluring, the solopreneur business model may be ideal.

Who is a solopreneur?

A solopreneur, or solo entrepreneur, is someone who independently owns and operates a business. These people pursue a passion – whether it’s performing a service or producing and selling a product – and turn it into profit. The long-term goal of many solopreneurs, particularly those who sell a product, is to earn passive income.

What is the difference between a solopreneur and an entrepreneur?

The primary difference between solopreneurs and entrepreneurs is the presence of a workforce or lack thereof. A solopreneur runs a business without any partners or employees. An entrepreneur, in contrast, may start as a single-person operation, but eventually hires workers as business grows.

Pros and cons of being a solopreneur

Being a solopreneur can be advantageous for those who desire either of the following:

1. Control
   Solopreneurs don’t have partners, so they can make business decisions unilaterally and maintain full ownership of the company at all times.
2. Work-life balance
   Because they answer to no one, solopreneurs can work at their own pace – where and when they want.

At the same time, operating as a solopreneur can pose difficulties for some. Two potential drawbacks include:

1. Increased stress
   Lacking a workforce, solopreneurs cannot delegate tasks to employees and may struggle to meet demand as they acquire new clients.
2. Isolation
   Working alone may take its toll on individuals who appreciate building relationships in the workplace and pursuing a common goal with others.

How to become a solopreneur in seven steps

Choosing the path of a solopreneur may come with a high degree of uncertainty. Individuals must consider developing a personal brand, establishing a client base and managing finances. This early phase is critical to future success, but it doesn’t have to be overwhelming. The following steps can help set the foundation for long-term growth and sustainability as an aspiring solopreneur.

1. Evaluate a business idea

It’s not enough to simply pursue a passion in business. There must also be consumer demand for the intended service or product. Determining up front whether a concept will work can save a lot of time, money and heartache down the road. This process involves identifying business scenarios and conducting feasibility studies.

Identifying business scenarios

Solopreneurs must first outline their competitive advantages, such as:

• Filling an unmet need
• Providing a cheaper solution
• Delivering superior quality

From there, they can brainstorm possible business scenarios by asking these types of questions:

• If creating a product, how will raw materials be acquired?
• How will the product be manufactured and sold?
• If offering a service, how will it be delivered to customers?
• How will the resources necessary to provide the service be acquired?

Assessing feasibility

Feasibility studies help solopreneurs confirm if their business idea is economically viable. These assessments typically include:

• Business description: An overview of a business’s product or service
• Market feasibility: An analysis of the industry, current market, projected future market and competition
• Technical feasibility: A detailed walkthrough of the entire process of sourcing and delivering the product or service
• Financial feasibility: A breakdown of the capital required to launch the business and available funding sources
• Conclusions: A discussion of what success would look like for the business

2. Write a business plan

While there is no single formula for all business plans, and some are more elaborate than others, there are some basic elements that may be necessary for solopreneurs:

Executive summary

The executive summary is a brief, one-to-two-page overview of the business plan. Potential investors may not read the entire plan if the executive summary doesn’t appeal to them.

Company description

In this section, solopreneurs tell the story of their business – why it exists, what it does and how it’s different from the competition.

Market analysis

Three key elements to include in a market analysis are the industry, the market and the competition. Solopreneurs may need to answer questions such as:

• What is the balance of buyer power and supplier power?
• What threats does the business face from substitute products and potential new entrants?
• Who are the key players in the industry?
• Who is the target audience, where are they located, and what are their needs?

Service or product description

This section thoroughly explains why the solopreneur’s product or service is a compelling solution to an unmet consumer need. Distribution details, operations strategy and research and development, if necessary, should be discussed here.

Marketing and sales strategy

There isn’t one marketing and sales strategy that works for everyone. Some solopreneurs prefer to follow proven tactics from a marketing agency, while others may want to stand out with a new approach. Either way, there are some universal factors to consider:

• Profit: Set prices that are competitive, but not so low they cannot generate sufficient profit.
• Positioning: Understand how the product fits into the marketplace, whether it’s a luxury good priced higher than the industry average or a cheaper alternative to high-priced competitors.
• Segmentation: Determine whether a range of products or services can be provided at varying prices, such as a basic product, premium product or subscription-based service.

Funding

Solopreneurs using a business plan as part of a funding request with lenders should make the case for why their business idea is a good investment. They may also want to include information on their available collateral and how they plan to repay the loan.

Financial projections

What will the next few years of the business look like? Some financial data to include in a projection include:

• Key assumptions
• Sales forecast
• Income statement
• Balance sheet
• Cash flow statement
• Break-even analysis

3. Find the right funding source

Solopreneurs incur startup expenses like other businesses. For example, they may have to invest in equipment or property, or pay for licenses, permits and certifications. These costs may exceed revenues for a period of time, which is why securing funding is such an essential step in business survival. Some of the lending options available to solopreneurs include:

• Local banks offer traditional financing, small business programs and government financing options.
• State and local government resources are sometimes available for financial assistance and business development.
• Nontraditional lenders are an option for solopreneurs with poor or limited credit, although loan fees and costs, interest rates, prepayment terms and other terms must be analyzed carefully.
• Crowdfunding is effective for certain business fundraising situations, with many online platforms available to meet specific needs.

4. Determine business structure

The sole proprietorship is the default business structure for solopreneurs. No paperwork is required for entity formation, and compared to other business structures, the sole proprietorship is simpler and cheaper to maintain. It’s also taxed as a pass-through entity, i.e., profits from the business pass directly through to the owner’s tax return with no tax payments for the business itself.

However, a sole proprietorship is not a separate legal entity from the business owner, even when the business operates using a trade name. As such, personal assets, like a house or car, could be seized by creditors if the company suffers a financial setback.

Alternatively, solopreneurs can structure their business as a limited liability corporation (LLC). It is more difficult and costly to establish and maintain than a sole proprietorship, but it provides liability protection. LLCs also have the flexibility of being taxed as a pass-through entity or a corporation.

5. Register the business

Solopreneurs who choose to become an LLC must register their business with their state(s) of operation. The process generally proceeds as follows:

1. Choose an available business name and reserve the name with the state
2. Appoint a registered agent
3. File formal state paperwork and pay the filing fee
4. Create an LLC operating agreement
5. Publish any required notices of the intent to form an LLC

6. Obtain tax identification numbers

Sole proprietors and single-member LLCs that don’t have employees or excise tax liability generally aren’t required by the IRS to have a federal employer identification number (EIN). They may file their taxes using their taxpayer identification number (TIN).

However, some banks and state governments require single-member LLCs to obtain a federal EIN. Having one can also help establish a history of business transactions for commercial purposes and build the business’s credit rating. Solopreneurs can apply for an EIN using IRS Form SS-4.

Additionally, a state or local ID number may be needed in some jurisdictions. Application rules and requirements vary by state or city.

7. Obtain business licenses and permits

Operating a business generally requires a local city or county business license and possibly a state professional or occupational license. Even if a specific license isn’t needed, business owners may still need a permit. The one most applicable to solopreneurs running a home-based business is the home occupation permit.

Solopreneurs may also need some form of property, liability or vehicle insurance, depending on the nature of their business. Insurance requirements vary by state.

Solopreneur business ideas

Solopreneurs have to accept that some ideas are beyond the scope of a one-person business. For instance, manufacturing a product on a large scale probably would not be feasible without employees. That doesn’t mean, however, that solopreneurs don’t have plenty of opportunities available to them. Here are a few:

Affiliate marketing

Digital marketers and freelance graphic designers who can build a website with a sizable audience may profit from affiliate marketing. In this business model, solopreneurs advertise the products and services of other businesses on their site. If a visitor purchases the product or service, the solopreneur earns commission.

Course creation

Solopreneurs with expertise in a particular field can teach others for a fee. Instruction is commonly provided via video. This type of business is ideal because minimal upfront investment is necessary, and the course can be sold as long as it’s relevant. However, success is contingent on whether the solopreneur can build credibility with an audience.

Software development

Developing software can be a profitable business because once the product is built, it only needs to be maintained or updated with new features. The caveat is that solopreneurs must have coding skills; otherwise, software development requires substantial upfront investment.

Ecommerce

Dropshipping has made it economically feasible for solopreneurs to sell physical goods online. How does it work? A third-party manufacturer creates, stores and ships the products. Meanwhile, the solopreneur handles sales and relays the orders to the manufacturer.

Frequently asked questions about solopreneurs

Can a solopreneur be a CEO?

Solopreneurs might own their own businesses, but their roles are not identical to a chief executive officer (CEO) at a larger company. The primary distinction is that solopreneurs single-handedly perform every business function, from research and development to sales and marketing. CEOs, in contrast, are leaders responsible for big-picture, strategic decisions. They don’t often immerse themselves in day-to-day business activities.

What’s the biggest difference between a solopreneur and an employee?

Although both produce physical results, solopreneurs have much more autonomy than employees. They alone determine when, where and how they work. Employees have little to no say in such matters and must abide by their employer’s terms and conditions.

What is the difference between a solopreneur and a freelancer?

Freelancers are usually incapable of earning passive income. They have clients, whom they must continually serve if they want to get paid. Solopreneurs, on the other hand, have customers. After the initial legwork, they may be able to sell a product or service without expending additional time or resources, thus achieving passive income.

Can a solopreneur have employees?

A solopreneur, by definition, is a one-person operation. Someone who starts a business and hires employees is known as an entrepreneur.

Can a solopreneur become a millionaire?

There are no get-rich-quick schemes. However, if a solopreneur has an original business idea that serves an in-demand need, it’s possible to turn a passion into considerable profit.

This guide is intended to be used as a starting point in analyzing the solopreneur business model and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax guidance or other professional services. Please consult with your legal counsel.