Money-Smart Solopreneur

A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers

Laura D. Adams

• Publisher: Entrepreneur Press
• Year: 2020
• ISBN:
  9781613084335
• Topic: Betriebswirtschaft
• Subtopic: Unternehmertum

Build Your Business and Your Financial Future

As a solopreneur, you can reinvent the way you work with much more freedom, fun, and financial security. There's never been a better time to earn more money by starting a full- or part-time solo venture. But being your own boss can be a challenge or feel scary when you don't have a roadmap.
In Money-Smart Solopreneur, Laura D. Adams answers questions every aspiring and new entrepreneur has about creating a business and building a secure financial future. It's a complete guide for what to do, critical mistakes to avoid, and how to start a solo business without taking too much risk. You'll get answers to these common questions:Can I get started without any filings or paperwork?Do I need a business bank account? How can I budget and reach goals with an irregular income?What business entity is best? When should I incorporate? How do I protect my intellectual property? When do I need an accountant? How can I figure out how much to charge clients?What tax deadlines am I required to meet? Do I need a business license? When should I leave my day job?Which tools are worth paying for?
No matter if you're a freelancer, independent contractor, or side-hustler in the on-demand economy, you'll get essential knowledge, tools, and inspiration to live a successful solopreneur life. Laura D. Adams demystifies how to start and build any solo or small business. She covers legal, financial, and tax issues you must know to stay out of trouble. Her upbeat tone and approach for managing variable income, using an automatic money system, and creating a self-employed benefits package are just a few gems you'll discover. Laura's smart tips and chapter exercises include refreshing strategies for earning more, managing the unexpected, and reaching financial goals. You'll come away empowered to build your full- or part-time solo business and create long-lasting financial security. After reading Money-Smart Solopreneur, you'll be able to:Earn full- or part-time self-employed income with confidence.Refine your business and brand vision.Evaluate the pros and cons of working as a solopreneur.Create a strategy to exit a day job by building a business on the side.Turbocharge your productivity using pro tips. Create a financial safety net and leapfrog to the life you want.Organize and legally protect your business using simple techniques.Set higher rates, create better proposals, and negotiate wisely.Save money by operating a home-based business.Set up an automatic money system to achieve goals and build wealth.Use the best tools to manage your personal and business finances easily.Know what taxes you must pay and how to reduce them as much as possible.Manage business records like a pro.Create your own self-employed benefits package with insurance and medical savings.Plan, save and invest for retirement using special accounts for solopreneurs.
Whether you work by yourself, with an outsourced team, from home, or in coffee shops, this essential guide will give you easy-to-follow tips and strategies to create more financial success. Here's what readers are saying about Money-Smart Solopreneur:
"No matter if you're building a business on the side or planning to exit a 9-5 job, Laura covers what you must know about managing money as your own boss. You'll learn how to thrive and create the financial future you deserve." -- FARNOOSH TORABI, FINANCIAL EXPERT AND HOST OF THE AWARD-WINNING PODCAST SO MONEY
"Money-Smart Solopreneur removes the obstacles that stop entrepreneurs from growing into their full, profitable potential. It is usually an oxymoron to put "enjoyable and easy to read financial advice" in one sentence, but Laura has delivered it all with this book. I will recommend it to every solopreneur I work with." -- PAMELA SLIM, AUTHOR OF ESCAPE FROM CUBICLE NATION AND BODY OF WORK
"This book is a must-read for anyone who's thinking about starting a solo business. It's easy to understand and gives practical advice for earning more, organizing your finances, staying out of trouble, and creating a lot more success as a solopreneur." -- DORIE CLARK, AUTHOR OF ENTREPRENEURIAL YOU AND EXECUTIVE EDUCATION FACULTY AT DUKE UNIVERSITY'S FUQUA SCHOOL OF BUSINESS
"A time-saving guide that will light up your path to success!" -- MIGNON FOGARTY, GRAMMAR GIRL AND FOUNDER OF THE QUICK AND DIRTY TIPS NETWORK
"Money-Smart Solopreneur gives you valuable knowledge and tools to create a business based on your own definition of success. It's perfect for anyone who wants to succeed and thrive at running their own company." -- PAUL JARVIS, AUTHOR OF COMPANY OF ONE
"A clear-eyed, honest, and approachable guide jam-packed with what you need to know to make the right jump in your career and life." -- MIKE LEWIS, AUTHOR OF WHEN TO JUMP: IF THE JOB YOU HAVE ISN'T THE LIFE YOU WANT
"Laura Adams somehow makes personal finance fun and educational at the same time - there's no one I'd rather get tips from when it comes to managing my own finances. Whether you're running your own business full-time or on the side, this book is an excellent resource." -- KIMBERLY PALMER, AUTHOR OF THE ECONOMY OF YOU
"This book is more than mere inspiration. Laura Adams has written an indispensable map for navigating the pitfalls everyone faces (but doesn't think about) when they're starting a side hustle or their own business." -- CHRIS HILL, HOST OF MOTLEY FOOL MONEY
"If you're ready to become a full-time entrepreneur or add solo work on the side of a day job, Laura covers what you must know about managing money. Use Money-Smart Solopreneur to build your business and a strong financial future." -- GERRI DETWEILER, SMALL BUSINESS AND FINANCING EXPERT AT GERRIDETWEILER.COM
"Whether your goal is to create a side business or a full-time venture, Laura covers what every solopreneur needs to know. You'll learn how to build your financial future starting now." -- PATRICK MCGINNIS, AUTHOR OF THE 10% ENTREPRENEUR AND FEAR OF MISSING OUT
"If you've been dreaming about starting your own business but don't know how, Laura Adams provides a detailed blueprint to help you make the leap to self-employment. Her easy-to-follow tips will help you overcome your fears of becoming your own boss, create a financial safety net to get your business up and running, and boost your chances of success." -- CAMERON HUDDLESTON, AWARD-WINNING PERSONAL FINANCE JOURNALIST AND FORBES.COM CONTRIBUTOR
"No more "winging it" and hoping for the best with your solo business. Use this effective system to ensure you're making the most of your entrepreneurial passion. Laura's done it, and so can you!" -- PHILIP TAYLOR, FOUNDER OF PART-TIME MONEY AND FINCON
"If there ever was a time to start a business, it's right now. Money-Smart Solopreneur is the perfect guide to help you successfully start, build and grow a profitable business that can in turn help you achieve your financial goals." -- BOLA SOKUNBI, FOUNDER AND CEO OF CLEVER GIRL FINANCE
"Money-Smart Solopreneur is an invaluable, easy to read guide to starting and running your solopreneur business. Laura covers everything you need to know through a combination of stories and action steps. Money-Smart Solopreneur covers all facets of starting and running your Solopreneur business. As a long-time solopreneur, this book would have served as an excellent roadmap in creating and managing my business. I highly recommend this book, whether you are just starting out as a solopreneur or have been a solopreneur for years. Money-Smart Solopreneur is a must have for your bookshelf." -- TONY STEUER, AUTHOR AND FINANCIAL PREPAREDNESS ADVOCATE AT TONYSTEUER.COM
"Being a solopreneur doesn't mean you have to walk alone. With her wisdom and first-hand experience, Laura Adams is a first-rate guide, pointing out the various pits and traps that snag the best of us out there working on our own. While being an entrepreneur is hard, Laura tackles even the hardest questions here in a straightforward, easy-to-understand way, so that you can focus on what you do best: working hard at bringing your vision to the world." -- JOE SAUL-SEHY, CREATOR AND CO-HOST OF THE STACKING BENJAMINS PODCAST
"Where was this book when I became a solopreneur?! Money-Smart Solopreneur is a smart step-by-step guide for what to do—and what not to do—when you're heading down the solopreneurship path. Laura Adams's book is an easy-to-digest recipe for cooking up solopreneur success." -- JOHN EGAN, PERSONAL FINANCE EXPERT AND OWNER OF JAYHAWK MEDIA LLC

PART I

BECOMING YOUR OWN BOSS

(Even Part Time)

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...