So you've decided you want to work for yourself. Seems straightforward enough, right? Your next step, so it would seem, would be to figure out the legal structure of your newfound self-employment.
But sorting through the differences between being a sole proprietor, an LLC, and a corporation is actually less important right now than understanding the kind of work you want to do, and knowing how willing you are to sell your services. Too often it's the paperwork that compels independent workers to make that choice, when personality and working preferences should really come first.
After all, there are multiple ways you can work for yourself. Self-employment is something of a misnomer, if only because of the wide (and arguably widening) variety of ways people are finding to be self-employed. Understanding some of those distinctions—and the options available to you—will influence everything from the way you understand your work to how you approach doing it, and even how you price it.
Each path requires a different mind-set and a unique set of skills. And while what you call yourself matters, too, these distinctions are about far more than just labels. Here's a quick guide to navigating them as soon as you set out to work for yourself.
This is the easiest way to begin working for yourself. Though you don’t usually get a regular paycheck or benefits from an employer, you can still hold onto the mind-set of an employee—you take the work offered to you with comparatively little negotiation.
Freelancers make money by providing their services at a competitive rate, often with no plans for building entire products. They tend to work on more narrowly designated aspects of projects. A freelancer (also known as a contractor) is typically hired to provide a limited set of services or to execute a plan, often one that someone else has created. For example, a freelancer might build a website according to detailed specs or write an article for a publication.
As a result, freelancers often end up as simple-line item expenses with other vendors: You perform a set of tasks, and accounts payable sends you a check 30 or 60 days after you file an invoice. There’s little strategy involved on your part. The tactical nature of this work often (but not always) means the pay is on the low side. Freelancers, who may be generally less comfortable selling themselves, get their work through their existing networks or by contracting through other independents who refer projects to them.
This certainly isn't to say it's a uniformly bad option. Being a freelancer might be right for you if you want to dip your toes into the working-for-yourself pool as an experiment, if you’re between jobs, if you just need a break from your current job, or even just to pick up some new skills. By its nature, though, freelancing can lack stability and may limit your control over your work, which many freelancers find challenging long-term. If you want to keep working for yourself eventually, you might want to transition to an independent business owner.
Independent business owners have made the mental transition out of the employee frame of mind. Settled on working for themselves, most look to building a sustainable long-term business.
In order to make the leap from freelancer to independent business owner, you have to be willing to package and promote your work. Having your own processes, service packages, and sales strategy means you can command more money—and respect. It also means more control, which can be really satisfying.
Independent business owners actively seek out work rather than over-relying on referrals. They understand what they’re best at and the value of their work. They’ve built a sales process and pipeline into their online presence. They ask qualifying questions on their contact forms and depict the ideal client on their product-offerings page. They understand how to market themselves and know that in order to have a sustainable business, they need to get over their hangups about promoting their work. Successful independents understand that marketing themselves isn't a horrible chore.
Independent business owners don’t like anyone else telling them what to do—and they don’t like telling others (like employees) what to do, either. They work best solo. If you’re willing to place all your bets squarely on yourself, this might be the best path for you. However, if you’re a natural collaborator who hates working alone for too long, or if you eventually want to build a big business, you might consider starting an agency or consultancy.
To start a consulting company, you have to not only transition away from having an employee mind-set toward being a business owner, you also have to be comfortable being others' boss.
Doing the work yourself and hiring people to do that same work are not the same thing. While independents focus strictly on doing the work, heading a consulting firm means more people management. Getting work from your personal network won’t be enough to sustain an entire team, which means you’ll also need to get good at sales skills like completing requests for proposals (RFPs) and writing proposals. The administrative and managerial tasks can become so all-encompassing that you rarely put your hands on the keyboard to do the actual work.
For some people, that's just the kind of self-employment they need. For others, it isn't. So when you're considering starting a consultancy, ask yourself:
- Do I want to be responsible for others' work?
- Do I want to be responsible for others' livelihoods?
- Does the work I want to do require collaboration?
If the answer to any of these questions is a firm "no," you may want to remain fully independent.
Knowing what you want from working for yourself is incredibly important. But it's something too many people try to figure out on the fly, without fully understanding the wide range of experiences and setups self-employment can offer. So before making the switch, take the time to understand your habits, talents, and what causes you stress, and whether you enjoy doing the work or managing the work. It'll make the rest of the process of setting up your business much easier—and it might prevent you from making costly mistakes.