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CHAPTER 1

KNOWING WHAT TO CALL YOURSELF

When you begin your entrepreneurial journey, one of the first questions you often encounter is what to call yourself. There are many terms for self-employment, and they’re frequently used interchangeably. Are you a solopreneur, freelancer, consultant, or something else? And does your choice make a difference to the government or your customers and clients?

First, let’s address this question from the perspective of your customers and clients. I believe that what you call yourself can affect their perception of you.

Every profession has its own specialized vocabulary and jargon. The label you give your work and your business when you talk about it, describe it on a website, or create an invoice should reflect your industry’s standards.

For instance, if other people in the same line of work call themselves consultants but you call yourself a freelancer, your title may not carry the same weight. If companies in your industry are used to working with freelancers but you call yourself a founder, that could mistakenly send the message that you’re only focused on innovation or building a large company and are not available to do their work.

So call yourself whatever your clients are accustomed to, which will ultimately give you a leg up. Use the terminology they’ll understand and value.

You might also wonder if what you call yourself affects your financial issues, such as taxes. For the most part, it doesn’t.

The IRS classifies your earned income in two ways:

1. You work for someone who pays you.

2. You own a business.

The first type is known as W-2 income, which you receive from an employer. The second is any trade or activity you do to make a profit. In other words, you can be a W-2 worker, you can run a business, or you can do both at the same time. It doesn’t matter what you call yourself or your business—the income it generates is taxed the same by the IRS.

We’ll discuss paying taxes on your business income more in Chapter 12. You’ll learn the various taxes that every solopreneur must pay, which tax forms to use, and how to comply with IRS rules so you stay out of trouble.

What Is a W-2?

The IRS requires employers to report wages paid to employees on Form W-2, Wage and Tax Statement, each year. Employers must send workers a copy of their W-2 by the end of January for income paid during the prior tax year.

If you’ve had a job, you had to complete Form W-4, Employee’s Withholding Certificate, before getting your first paycheck. The W-4 indicates to your employer how much money to withhold from your paychecks for federal taxes. Depending on where you live, you may also have forms to complete for state and local tax withholding.

Accurately completing a W-4 is important so you have the right amount of taxes taken out of your paycheck throughout the year. Having too little withheld means you could have a big balance due at tax time. Having too much withheld prevents you from having more money in the bank throughout the year. When you receive a tax refund, that means you overpaid taxes during the prior year, and the IRS is giving back what they owe you.

When you earn business income, you don’t receive a W-2, because you don’t have an employer automatically withholding tax from paychecks they give you. However, you’re still responsible for paying the same taxes that employees pay.

The Lexicon of Self-Employment

Let’s break down some common terms for business owners. Getting familiar with them will help you know how to identify yourself and the solo work you’re doing or plan to do.

Business Professional

This is someone whose business activity depends on specialized training or advanced skills, such as a doctor, attorney, accountant, or financial advisor. They may have a local office that’s open to the public and work alone or with hired employees.

Example: Trudy is a licensed real estate professional who works with residential buyers and sellers. She’s affiliated with a local brokerage, where she works and meets clients. Her broker splits commissions with her 50-50 and offers a variety of services, such as training and an office assistant.

Consultant

This is someone who typically was once an employee and has career skills or advanced training that’s valuable to other businesses or individuals. They may work alone or have employees and do consulting full time or on the side in addition to their day job.

Example: Diane used to work as a COO for a Fortune 500 company. Now she’s a performance coach for corporate executives who want to improve their leadership skills. Diane conducts calls with her clients from home or travels to their offices for meetings. She works alone and bills clients a monthly retainer to consult with them on an ongoing basis.

Entrepreneur

This is someone who creates and manages a business. The term is often used to describe someone who takes on risk or has an innovative idea. However, it’s an umbrella term that can be used for anyone who is in business, with or without employees.

Example: Bill used to live in Ecuador and saw the potential for a hostel and restaurant that would cater to American tourists. He and a family member invested funds to open the Magic Café in downtown Quito. Bill manages a team of workers from home and makes quarterly trips to Quito to meet with his staff.

Founder

This is someone who has a business idea and establishes a company. They take on risk and typically recruit a team to help execute their idea. A founder splits the original ownership in some way and may bring in outside investors to build the enterprise.

Example: Jane used to be a sales representative and buyer for a floor covering distributor. She saw a need in the marketplace for environmentally friendly flooring products and decided to found her own company, America Green Floors. She brought in three partners to invest in her startup and take leadership roles. Each partner has a 25 percent interest in the company’s profit. Jane manages all aspects of the company’s product procurement from her home office.

Freelancer

This is someone who often works alone in a creative field, such as writers, designers, software developers, and producers. A freelancer typically provides services to businesses without a long-term commitment to any one client, and usually seeks out assignments and clients that give them maximum work flexibility.

Example: John is a freelance editor and writer who creates blog posts for a variety of website clients in the automotive space. He refers to himself as a self-employed freelancer, which sends the message that he works on multiple projects simultaneously. John primarily works from home but also uses a local co-working space for networking opportunities. He takes a month off each year to travel and visit family.

Independent Contractor (IC)

This is someone who may work alone or with hired employees to provide services for one or more businesses. An IC is similar to a freelancer but tends to have longer-term commitments and fewer clients.

Example: James is a lighting technician who rigs stage sets for theaters and entertainment venues. He typically contracts to work with a particular company for their entire production season and bills by the hour for his services.

On-Demand Worker

This is someone who typically works as an IC for an on-demand company or app, such as Uber, Instacart, or TaskRabbit. They fulfill consumer demand for products and services through networks created by technology.

These gig-based businesses are electronic middlemen, taking a cut of the price to connect customers with providers. They’re also known as the creators of the “sharing economy,” because they share access to goods and services through online platforms.

Example: Dorie is a stay-at-home mom in Denver who drives for various ride-sharing services, such as Uber and Lyft. She works for a few hours in the evening after her husband gets home from work. Dorie enjoys getting out of the house, meeting people, and earning a commission on every ride she completes.

Permalancer

This is someone who works as an IC for one company over a long period of time. The word is a mashup of “permanent” and “freelancer.” If you do a significant amount of work for one client, you might call yourself a permalancer.

Example: Steve is an audio engineer who works with individuals and companies to create audiobooks. He’s been working with a large publishing house almost exclusively for the past few years as the demand for audio products has grown. Steve bills the publisher a set rate per completed audio project.

Self-Employed

This is a broad term for someone who works for themselves. They earn income from their trade, profession, or business, instead of from an employer. They are their own boss, and no one else controls how they work. They may choose to work alone, with partners, with hired employees, or with other self-employed people. And they might call themselves any of the terms in this section, such as a consultant, freelancer, IC, or entrepreneur.

Example: Barbara is an independent housecleaner who maintains regular appointments with a portfolio of clients. She works full time and bills by the hour for her cleaning services.

Side Hustler

This is someone who has a full-time, W-2 job and runs their own business on the side. They might offer a product or service that they intend to eventually develop into a full-time business, or they might just enjoy having an additional income stream. They could work on their side gig alone, with partners, with hired employees, or with other self-employed people.

Example: Justin has a nine-to-five job working for a fintech company as a marketing director. He also provides marketing services and consulting to several small businesses on the side. He typically charges a monthly retainer or a project-based fee, depending on the scope of his clients’ needs.

Small-Business Owner

This is a general term for someone who works for themselves. They make decisions for the business and enjoy its profits. They might work alone, with partners, with hired employees, or with other self-employed people. Note that the U.S. government defines a “small business” as having up to 500 employees.

Example: Betsy runs an antique shop in a downtown main street location. She has two full-time employees, including herself. When the shop’s profits are higher than expected, Betsy also takes dividends from the business.

Solopreneur

This is a broad term for someone who is self-employed with no employees. It’s a mashup of solo and entrepreneur, meaning that they run a business single-handedly. However, solopreneurs commonly work with other business owners to achieve their objectives. Solopreneurs are typically service providers with specialized skills, such as consultants, virtual assistants, writers, and coders, who want a flexible and straightforward business.

Example: As a writer, speaker, and spokesperson, I work with a variety of clients on short-term and long-term projects and campaigns. I don’t have employees, but I commonly use other businesses and ICs, such as website designers, social media marketers, and accountants, to assist with my work.

Tips for Defining Your Business

The bottom line is that whatever you choose to call yourself, if you earn income on your own and not as wages from an employer, you’re a business owner. There is no legal or financial difference between being a business owner and being self-employed or an IC. The different terms for self-employment have gray areas and overlap. Ultimately, how you represent yourself to potential clients or fellow guests at cocktail parties is entirely up to you.

If you’re still not sure how to label your business, here are some tips:

$ Use the same business label as your competitors. If you have competition or know successful people doing similar work, find out what they call themselves. Search on LinkedIn or Google to read their business descriptions or bios for clues about the norms in your industry. If you call yourself a solopreneur because you think it sounds more prestigious than “freelancer,” it could hurt your business prospects if your potential clients aren’t familiar with that term.

$ Use the same business label your potential clients would use. The language you choose to describe your business should match what your potential clients and customers would search for. Do they type “independent contractor” or “consultant” into search engines? If you’re not sure what your ideal clients are looking for or where they would find you, the easiest way to find out is to ask them. And when a new client does discover you, be sure to ask them how. Find out what search terms, platforms, or people were responsible for your connection.

$ Use your business label consistently. When you decide on a business label, use it throughout your marketing: on print materials, websites, social media accounts, and bios. Say it with confidence and a professional attitude when you talk about yourself. If you’re not consistent when you write and speak about your business, you may end up confusing people. Choose the label that works for you and stick with it.

Refine Your Business Vision Exercise

There are many versions of solo businesses, and yours may evolve over time. Consider the type of venture you want to build or may have already created, and answer the following questions:

$ How will I describe my solo business when speaking with others, such as potential clients, collaborators, or business partners? (For example: “I’m a freelancer,” or “I own a small business.”)

$ How would other people in the same industry or profession be likely to describe my solo business?

$ Consider any competitors who you think are successful. What are three specific reasons that you consider them a success?

$ Once you’ve decided how to label yourself and your business, where should you include it (e.g., website, LinkedIn profile, media kit, business cards)?

Whether you call yourself a founder or a freelancer, at the end of the day, what you need to know to succeed in your solo business is pretty much the same. In the next chapter, we’ll review some of the main pros and cons of being a solopreneur.