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CHAPTER 2

PROS AND CONS OF BEING A SOLOPRENEUR

There are many advantages to working for yourself, but there are downsides, too. To succeed as a solopreneur, you’ll need to understand the many responsibilities that come with being a business owner.

Every entrepreneur has different reasons for becoming self-employed. I get many questions from Money Girl podcast listeners, blog readers, and members of my Dominate Your Dollars Facebook group about their self-employment journeys. Some are wondering how to start a side gig to create additional income for paying debt, education expenses, or retirement contributions. Some have already launched new, exciting solo businesses with hopes of someday exiting their uninspiring day jobs.

I’ve connected with folks who want to create a solopreneur lifestyle so they can live where they want, quickly relocate for a spouse’s career if needed, continue earning an income while traveling, or promptly respond to the demands of their young children or aging parents. Some parents start small entrepreneurial ventures with their children as a way to bond over shared activities, instill life and business skills, and boost their kids’ confidence.

First, I’ll cover the eight pros of being a solopreneur that mean the most to me. Then I’ll review eight cons to consider if you’re thinking about or have already started working for yourself.

The Pros of Being a Solopreneur

Whether you make the leap to full-time self-employment or freelance on the side of a regular day job, here are eight advantages you may enjoy.

1. You Do Work You Love

One of the greatest benefits of self-employment is having the power to do work that you genuinely love. Feeling passionate about the services or products you offer can undoubtedly improve your chances of success.

Building something you own, instead of helping someone else grow their business, makes you proud. Relying on your ideas, skills, and perseverance is incredibly empowering. You may find yourself bragging about your work instead of dreading that moment when someone asks what you do. People seem more interested in your job when you’re passionate about it!

Plus, when you enjoy your job, it doesn’t feel like work. Most of us spend more hours working than doing anything else. So why not make it something you believe in and find fulfilling?

2. You Control Your Income

Another alluring advantage of self-employment is being able to earn as much as you want. While a business’s profit potential depends on many variables, if you’re motivated, you can reach realistic income goals. Some solopreneurs make a good living from day one, although it typically takes months or even years to earn the income you want.

Your solo business may allow you to earn more or less than you would at a W-2 job. You can make as much as your customers will pay. For example, if you’re a computer programmer employed by a technology firm, you might earn $75 an hour. But as a freelance programmer, you’d likely find companies willing to pay you $150 an hour or more. We’ll discuss setting rates for your business in Chapter 8.

If you commit to working hard and offering excellent products or services that are in demand, you’ll eventually make the money you want.

3. You Can Get Things Done Faster

As a solopreneur, one of your competitive advantages is the ability to work efficiently and quickly. You don’t have the red tape that often comes with a W-2 job, when you have to wait for approval from a boss’s boss to get something done.

You can deliver products and services to customers faster than a large company could. You can be flexible when a client needs a customized project. Your ability to meet quick deadlines can also translate into higher earnings.

A huge benefit of working for yourself is your ability to be proactive when market demand shifts or you see the opportunity to offer a new product. Being nimble allows you to serve customers better with innovative solutions. When you’re self-employed, you can make business changes and decisions as fast as you’d like.

4. You Control the Destiny of Your Business

Most entrepreneurs would likely call themselves “driven” or say that they like to be in control. When you’re self-employed, you’re not beholden to a company or a boss. You can’t be fired, downsized, or forced to attend meetings.

Having your own business means that you get to create your future. You decide how to brand, delegate, and scale your company. It can be as challenging, creative, or busy as you want to make it.

Depending on the type of work you do or want to do, it could satisfy both professional and personal goals. For instance, you might have a side gig consulting for nonprofits with missions that are important to you. Or you could create a business that allows you to leverage a skill you already have or want to improve, such as teaching music lessons, guiding fishing trips, or being a travel photographer.

Starting a new business endeavor can help you pursue networks of people or activities that you are genuinely interested in. By experimenting with low-risk opportunities, you can find out if you like the work and if there’s adequate demand. Then you can make the call on whether to move on to something else or continue investing your time and money.

5. You Choose Your Colleagues

Bad bosses and irritating co-workers drive many self-employed people away from the W-2 world. The people who interviewed you for the position may have seemed lovely, but you don’t really know someone until you’ve worked with them. Being subject to unreasonable leaders or devious teammates can make work about as enjoyable as a nap on a fire-ant hill, and unless you want to start applying for new jobs, you’re stuck with them.

But when you’re the boss, you control the partners, vendors, employees, and clients you work with. You’ll never have to endure mandatory fun (such as team-building events) or an office culture that rubs you the wrong way.

Unless you manage every aspect of your business, you’ll likely rely on other solopreneurs or small businesses for help with a variety of tasks. But if they don’t give you the results you want or have a bad attitude, you can easily find replacements. Being self-employed means that you call the shots about whom to hire and let go. As your business grows, you’ll have more control over the people, companies, and industries that you want to work with.

Being your own boss means you can and should surround yourself with great people. Weed out anyone who doesn’t uplift you or have good energy. If you have a client who’s a jerk, you can fire them.

Yes, there are times you will have to keep a difficult client because you need the income. But remember that you’re still in charge. Working with people you enjoy and who make you feel confident is one of the best things about being in business for yourself.

6. You Decide When to Work

One of the most valuable parts of having your own business is the flexibility that comes with it. Depending on your business, setting your own hours, wearing workout clothes all day, and cuddling with your pet while you work may be possible. You may be able to take care of your kids or aging parents more easily when you’re self-employed than if you had to report to a day job.

As long as the work gets done, you can create work habits that fit the lifestyle you want. You set your own priorities when you’re self-employed. In some cases, you might work more hours than you would in a W-2 job. But it can still feel healthier because you organize it around your schedule. If you need to work late into the night or on weekends to have more free time during the week, you can make it happen.

Being a small-business owner gives you a freedom that rarely comes with a W-2 job. Yes, venturing out on your own or starting a side hustle can come with risks and struggles—but it can also turn out to be well worth the effort.

7. You Choose Where to Work

Many solopreneurs can work wherever they want. That could be a tiny studio apartment, a leased space in an office park, or a coffee shop abroad. You could live a remote lifestyle while you travel frequently and work anywhere with an internet connection. I’m writing this and doing other work from home during the coronavirus pandemic that’s caused so much turmoil in the global markets. Having the option to hunker down and still earn a living is a tremendous benefit that can’t be overstated.

If you’re like me and mostly work from home, you rarely have to set an alarm clock to get up early and fight traffic. You don’t have to commute or work in a cubicle or a noisy, open-plan office. Best of all, you can opt out of time-sucking office politics, gossip, and mandatory celebrations.

Unless you see clients frequently, you can also save a bundle on office attire. Most of my days are spent in activewear or casual clothing unless I’m doing video work at home or in a studio. In general, being self-employed gives you much more freedom than working for someone else.

8. You Can Claim Money-Saving Tax Deductions

You can claim a variety of business tax deductions, whether you’re a solopreneur, a part-time freelancer, or the owner of a large corporation. These deductions help entrepreneurs manage the costs of running a business.

The IRS says that to be deductible, an expense must be both ordinary and necessary for your trade or business. Some common deductions for small businesses and solopreneurs include office supplies, marketing, equipment, and professional fees.

In general, you can’t deduct your personal or living expenses from business income. However, if you have costs that are both personal and business, such as a vacation combined with an industry conference in Hawaii, you can deduct the portion related to business.

Additionally, if you use part of your home for your business, you may be allowed to deduct a variety of expenses by claiming the home office tax deduction. If you qualify, this is a valuable tax break that you should be sure to take advantage of. You’ll learn more about typical business write-offs in Chapter 13 and the tax benefits of having a home office in Chapter 14.

The Cons of Being a Solopreneur

Working for yourself clearly comes with many advantages, but you shouldn’t discount the disadvantages. Only you can decide if the pros of being a solopreneur outweigh these eight main cons.

1. You Don’t Have a Regular Paycheck

Being your own boss means that you have to put in some hard work without the guarantee of a steady paycheck. As an employee, you get paid regardless of the state of the economy or your company’s monthly profitability.

While you could make more with your own company than with a W-2 job, it could take time to build revenue. Even then, your income could vary significantly each month or each year. Most solopreneurs have up and down periods based on multiple factors, such as the economy, seasonal changes, and your efforts and skill level.

Independent workers have to pay closer attention to their finances than most salaried workers. If you can start a solo venture on the side while keeping your day job, that’s a great way to keep your income stream flowing. It also gives you room to experiment with your business idea and test the market for potential customers.

2. You Aren’t Legally Protected

There are a variety of federal and state laws that protect employees, such as receiving a minimum wage, getting overtime pay, and not being subjected to harassment or discrimination. Employers over a certain size must offer leave to care for a new child, aging parents, or family emergencies, as well as for military service and jury duty. As a solopreneur, you don’t qualify for any of these worker protection laws.

3. You Have Tax Requirements

Many entrepreneurs are caught off-guard by their tax requirements when starting a new business. When you work for someone else, your employer withholds your federal, state (where applicable), Social Security, and Medicare taxes from your paycheck. But when you’re self-employed, you generally must estimate these taxes and pay them yourself every quarter.

After you’ve been self-employed for a while, you’ll know a lot more about taxes than your friends who only have to fill out a W-4 when they start a new job. While dealing with taxes can be a hassle, especially when you’re getting started, you can always use tax software or hire a professional. And after you’ve read this book, you’ll know exactly how to pay your taxes and stay out of trouble. In Chapter 10, I’ll recommend some of my favorite tools that will help you stay on top of your taxes.

4. You Must Purchase Your Own Insurance

In addition to taxes, one of the most significant expenses you’ll probably have to pay as a solopreneur is insurance. While workplace benefits typically aren’t free for employees, many companies offer a variety of products—such as health, dental, vision, life, disability, accident, and hospital insurance—at competitive, and often subsidized, group rates. Unless you have a spouse or partner who can add you to their health insurance, getting individual coverage will likely cost much more.

When you leave an employer with 20 or more employees, you typically can maintain existing health, dental, and vision coverages for up to 18 months through a federal law called the Consolidated Omnibus Budget Reconciliation Act (COBRA). However, your employer won’t be subsidizing you anymore, so the premiums could be significantly higher.

But COBRA doesn’t apply to other types of insurance, such as life or disability, so you generally lose those coverages by the end of the month you leave an employer. Maintaining a day job while you build your business on the side can allow you to hold on to valuable benefits indefinitely or give you a smoother transition until you can afford to purchase benefits on your own. We’ll cover much more about creating your own benefits package as a solopreneur in Part V.

5. You Must Plan for Your Own Retirement

Being your own boss means you’ll have to plan for your retirement. You won’t have a workplace retirement account—such as a 401(k), 403(b), or 457 plan—or enjoy the additional free matching funds many employers offer. There won’t be an automatic payroll deduction that seamlessly moves money into your investments.

Fortunately, there are great retirement accounts designed for the self-employed, such as a solo 401(k) and a SEP-IRA. They give you the same tax advantages you’d get from an employer’s plan. But you have to take the initiative to open an account, choose investments, and make regular contributions to fund your future retirement. In Chapter 18, we’ll cover the best ways to create a self-employed retirement plan.

6. You Have Administrative Requirements

Whether it’s dealing with a retirement account, business regulations, records retention, invoicing, or collections, being a solopreneur means having many administrative requirements. You must be organized enough to complete time-sensitive tasks or delegate them effectively.

If you don’t maintain a sound record-keeping system for receipts, payments, and employee data, your tax returns probably won’t be correct. If you fail to maintain accurate records and you’re audited by federal or state authorities, you could end up owing significant back taxes and penalties. We’ll cover how to keep records like a pro in Chapter 15.

7. You Must Make Complex Decisions

Being self-employed is incredibly rewarding, but it can be much less glamorous than you think. You must make difficult and often complex decisions, such as whether to offer a new service, ask for a retainer payment, or join forces with a new partner, and you may not always have as much data as you’d like before you do. Dealing with uncertainty is part of being a business owner.

You may be used to the complexity and decision-making risks of a day job, but when it’s your money and time on the line, it can be significantly more intense and stressful. If you procrastinate making important decisions, it can be detrimental to your business.

If you’re not a good decision-maker, you can get better at it over time. You can also hire advisors or coaches to help you work through problems and knock down barriers to your business success.

8. You Must Manage Your Time

As an entrepreneur, you’ll have a lot of demands on your time—from clients and vendors to family and friends. Everyone has 24 hours in a day to divide among our professional and personal priorities. You’re the only one who can make the necessary adjustments to your schedule, such as eliminating activities that don’t align with your goals.

Evaluating a Solo Leap

Working as a part-time or full-time solopreneur can be the key to increasing your income, leveraging your skills, and building a life around your priorities. As you consider the pros and cons of working for yourself, answer the following questions:

$ Which upsides of becoming a solopreneur am I looking forward to the most?

$ Which downsides of working for myself am I dreading or worried about the most?

$ What resources or professionals could help me overcome or minimize any cons of becoming a solopreneur that I anticipate?

$ Who do I know with a similar, successful business in my industry or field whom I could meet with to ask about their experiences?

If you’re used to working as a W-2 employee, with schedules and priorities dictated by your boss and teammates, you won’t have that as a solopreneur. You’ll need to stay laser-focused on activities that create revenue, make customers happy, and build your business skills. While you can’t create more time, we’ll cover the secrets to increasing your productivity during the time you have in the next chapter.