Freelancing Or Running A Small Business – Which Is It?

You might think that freelancers and small business owners are two terms for the same type of people. It’s easy to make this mistake after all, both tend to work from home these days and often operating online. That said, there are distinct differences and one crucial similarity that you need to be aware of. Let’s take a look at some of the differences.

Flying Solo

If you think that freelancers and small business owners both work alone, you may be interested to know that only one can accurately be described this way. Freelancers will never hire employees and will only go as far as hiring an outsourcing service. Even this is rare however. A freelancer is truly flying solo on the market and has no intention of hiring any employees.

In contrast, small business owners may start independently but will typically have the desire and goal to eventually hire employees. This may be just the beginning of their business after all. The goal to build something bigger than themselves will more often than not be there for a small business owner.

Legal And Licensing

You can operate as a freelancer with virtually no licensing, and there are little to no legal requirements. This isn’t the case for small business owners. A small business needs a formal registration with the government and may require a business licence. There are more legal obligations if you’re working as a small business owner compared with a freelancer. However, as we will discuss, that doesn’t mean you are completely off the hook legally as a freelancer.

The Cost

You can operate as a successful freelancer putting next to nothing into it. You can get started with no money in your account thanks to free to use platforms that will assist you when looking for contracts. This can be a catalyst for success.

For small business owners however, this may not be the case. There’s more to pay for, more services you’ll need, and it’s difficult to get started successfully without at least a few thousand in your account.

Time

A small business owner will typically run their company during the hours that a major business does. It would most likely be a nine to five job with additional hours put in where needed. This can mean working seven days a week. For a freelancer, they will work as much or as little as they need to reach their desired level of pay or income. This could mean working a two day week or a seven day week depending on how much they charge.

The Important Similarity

First, there’s the issue of how the government sees you as a freelancer compared with a small business owner. It’s more or less the same. As a freelancer, you will have to set up taxes as a sole trader which will require you to name yourself as a small business. It’s remarkably similar to paying tax when registering a small company.

As well as this you are equally liable legally as a small business owner and a freelancer. Both could suffer from heavy claims that could cripple the business or project. That’s why it’s important to have the same level of insurance coverage, regardless of whether you are operating as a business owner or a freelancer.