Business Loans

Solopreneur or Entrepreneur? How to Tell the Difference

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

The solopreneur is on the rise — of the 31.7 million small businesses in the U.S. in 2017, 81% of them had no employees, according to 2020 data from the U.S. Small Business Administration (SBA) Office of Advocacy. Typically, solopreneurs single-handedly manage multiple operations of their business, such as sales, marketing and accounting.

While solopreneurs generally enjoy greater control over their business, taking a DIY approach to everything may feel overwhelming and lonely. If you’re going into business on your own, find out if solopreneur would be the right role for you.

What is a solopreneur?

A solo entrepreneur, or “solopreneur,” operates a business without hiring employees or enlisting business partners. Since there are no business partners involved, solopreneurs can enjoy full autonomy over their businesses.

Although similar to freelancers and independent contractors, the term “solopreneur” has a slight difference. Where many freelancers and contractors might operate without registering their business, a solopreneur generally runs a formally registered enterprise.

Solo entrepreneur examples include service-based businesses, such as web developers, event planners and real estate agents, but can also be product-oriented businesses. Without employee salaries draining cash flow, solopreneur ventures can have low startup costs.

4 differences between a solopreneur and an entrepreneur

The primary differences between a solopreneur and an entrepreneur are in the company’s headcount and its ability to scale.

Solopreneur vs. entrepreneur
Solopreneur Entrepreneur
Acts as the only employee of the business. Manages a team of employees.
Typically offers one product line or a single service. May have multiple lines of business.
Responsible for reporting personal payroll taxes. Responsible for reporting both their own and their employees’ payroll taxes.
Unable to grow the business past a certain point. Able to scale the business to become a larger operation.
Solopreneurs work alone, while entrepreneurs manage a team and delegate tasks.

Solopreneurs typically work alone and can grow the business independently. They wear multiple hats — such as the role of a marketing associate or accountant — to grow their business. However, this shouldn’t suggest that solopreneur support is off-limits — solopreneurs may hire a virtual assistant on a contract-basis to handle administrative tasks, for instance.

Some entrepreneurs begin as solopreneurs but hire more employees as the business grows. Entrepreneurs can play the role of a manager delegating tasks to their employees, which can free up time for them to focus on running and growing their business.

Solopreneurs usually have a single business focus, but entrepreneurs may have many.

A one-person business typically revolves around a specific service or a single product line. For example, a personal trainer offers their clients guidance on exercise. Or a solopreneur may sell their own brand of multivitamins through their website.

Entrepreneurs typically offer multiple services and product lines because they hire employees. For example, an entrepreneur may open a wellness center and hire employees that provide personal training sessions and massages. Within that same center, they may also have a store that sells multivitamins and apparel.

Both must report their own payroll taxes, but entrepreneurs are also responsible for reporting employees’ payroll taxes.

Since solopreneurs do not pay employees, they are responsible for their own self-employment taxes, including Social Security and Medicare contributions. Solopreneurs do not have to worry about issuing W-2s (but may need to file 1099 forms if they work with contractors.)

Since entrepreneurs hire employees, they are responsible for reporting their employees’ payroll taxes. Employers are also obligated to withhold taxes plus wages, tips and other forms of compensation from their employee’s paychecks.

Solopreneurs are limited in their business growth, while entrepreneurs are better suited to scale.

Although a solopreneur may run an efficient business with software that streamlines certain business systems, they are only one person; there is a limit to the number of hours and energy they have on a given day. This may place a cap on the revenue a solopreneur can generate.

Entrepreneurs are generally more suited to scale. Hiring more staff is often a key element of scaling a business successfully — you may need more hands on deck to meet higher business demands. For example, a restaurant owner can open multiple locations by hiring more managers and staff.

Pros and cons of working as a solopreneur

Operating a company of one can be challenging, so be sure to consider the pros and cons of becoming a solopreneur.

Pros

 You can maintain full control of the business without any influence on your decisions. As the sole owner of the company, you have total autonomy over your business. Business decisions don’t get delayed because there is no need to consult with your partner or a board of directors.

 You can take home a bigger share of the profits. As a solopreneur, there are no partners or employees you need to pay. The money you would’ve spent on employee salaries and other employee-related costs goes into your pocket.

 You can shape your environment and schedule. Since the solopreneur is the primary decision-maker, they can choose to work from home, an office or even a coffee shop. Nonemployers also typically enjoy greater schedule flexibility, working when it best suits them and their business.

Cons

 No workplace camaraderie. There may be some days when you miss chats by the watercooler with your coworkers. If you lean more extroverted and need regular socializing, solopreneurship may feel like a lonely journey.

 Hiring outside help, such as contractors, can be challenging. When hiring additional support, you will need to consider specific factors, such as, where to find contractors, if the worker uses their own equipment and whether you pay an hourly or flat rate. Understanding the difference between a 1099 contractor versus a W-2 employee is critical, too — misclassifying an employee as an independent contractor can incur fines and penalties.

 Time away from work may be limited. Although solopreneurs can feel overwhelmed from handling multiple business operations, such as sales, marketing and accounting, it can be difficult to take time off. Without employees on whom to offload these responsibilities, solopreneurs may feel uncomfortable scheduling a vacation or taking a sick day.

How to become a solopreneur

If solopreneurship feels like the right path for you, the following steps can offer guidance on getting started.

1. Research and test your business idea.

Writing a business plan helps ensure you have a roadmap for transforming your business idea into a profitable enterprise. Within your business plan, researching your target customer’s demographics — their age, income and gender, for instance — can offer valuable data for delivering a superior product or service.

A competitive analysis offers deeper insight into how your business might fare against direct competitors. By analyzing your competitors’ strengths and weaknesses, you can craft a strategy to distinguish your business and deliver a superior product or service.

2. Register your business before you begin operating.

Although sole proprietorships are convenient because they don’t require a formal registration process, you leave yourself legally vulnerable. Registering as a limited liability company (LLC) or corporation offers certain legal advantages to solopreneurs. An LLC protects your personal assets if your business ever lands in legal hot water, for instance.

The process for registration can change depending on which business entity you choose. Typically, you would need to register with your state’s secretary of state office either online or in person. You would then need to file certain documents — articles of organization for LLCs or articles of incorporation for corporations. Keep in mind that a filing fee may apply and the amount can vary by state.

3. Calculate your startup costs and secure funding, if needed.

Having a realistic idea of your startup costs can help you understand the capital requirements of starting and running your business. Solopreneurs should consider one-time expenses — commercial equipment, permits and licenses, for instance — and recurring costs, such as software monthly subscriptions and rent.

If this is your first venture, meeting the time-in-business requirements for a startup loan presents a challenge. In the earliest stages of your business, you may need to self-finance with your personal savings — also called bootstrapping — until you meet the requirements for a business loan. A business credit card can also help pay short-term capital needs while helping build your business credit score.

4. Build brand awareness. 

There are multiple ways to generate buzz around your business. Word-of-mouth marketing and volunteering at community events are some low-cost strategies to build brand awareness. Paid social media ads and email marketing are some online marketing tactics that can promote your new business, too.

Implementing a marketing strategy for your grand opening can help you secure business from day one. Depending on your business, consider launching a “soft opening” to identify potential problems and do some fine-tuning before your official opening. For inspiration, observe what your competitors are doing and what works for them.

 

Compare Business Loan Offers