By John Krubski, Research Advisor to The Guardian Life Small Business Research Institute
What Are The Most Important Things a Sole Proprietor Needs to Know?
I first became an entrepreneur at the age of 24; starting a one-man ad agency without the benefit of having worked in one. In the course of the next decade or so I started several other ventures, participated in an Internet start-up that didn’t and held executive positions in Fortune 100 Corporations, including the National Broadcasting Company. I had the opportunity to see what it was like to work for myself before I worked for anyone else and chose to go back to being my own boss after having had positions in larger corporations and managed my own small enterprises.
Not sure what a sole proprietorship is? Learn the definition and more information.
I have also had an opportunity to consult with and for companies of all sizes from multi-nationals to businesses of under 20 employees. As part of the team that created The Guardian Life Small Business Research Institute (The Institute), I have had a chance to converse with and study the values, attitudes, behaviors and aspirations of thousands of small businesses, including sole proprietorships.
Here are seven things I have learned from nearly forty years’ experience in working for myself and in taking a comprehensive look at sole proprietorship in America:
- What sole proprietors contribute to the American Economy is every bit as important as the Fortune 100, or the most spectacularly successful start-ups offering highly-publicized initial public offerings. Along with their 21-million counterparts, they provide jobs for themselves (which corporate America clearly could not do at 100 percent). In fact, if each sole proprietor looked to big business to create jobs for them instead of taking the initiative themselves, unemployment in the United States would rival Great Depression levels.
- While sole proprietors are not officially counted among the ranks of “employers,” the services and products they purchase and rely on make it possible for millions of their fellow Americans to be gainfully employed by companies of all sizes and types. Their buying power contribution to the economy is immense – roughly seven percent of US GDP or about one trillion dollars.
- Considering the size of the Millennial Generation (some 100 million people), the importance of sole proprietorships to the national economy can only increase in the future. On the one hand, the jobs Millennials will need won’t be created by others; demand is already outstripping capacity. On the other hand, both Millennials and our sixth current living generation (The Homeland Generation) will be better equipped to work as single entrepreneurs and contractors by education, disposition and technological enabling.
- Even though they are only one person, they need a short-term operating plan and a long-term strategic plan. It’s the best way to keep on track and have a benchmark to work towards. According to The Institute, companies that take the time to plan tend to be significantly more successful than those that don’t. More than 60 percent of successful businesses get there through planning.
- Sole proprietors need to make a habit of “socking away” a portion of their annual earnings so that they can weather the inevitable storms and have money on hand to take advantage of opportunities as they come up. They should put aside a purposely “uncomfortable” amount and do it habitually. According to The Institute’s data, almost 50 percent of successful companies do this. We historically have a recession every five to seven years, so being prepared matters.
- They should not let life consume them. The Institute’s data, along with conversations with successful sole proprietors and small business owners, show that the more successful ones get at least as much out of their business as they put in. The percentages say that if small business owners enjoy a good balance of work and life, they are more likely to have business success in the long haul.
- They need to play well with others. Just because they are a “sole proprietor,” it doesn’t mean they should go at it alone. In fact, data shows a direct correlation between successful businesses and collaboration. They need to ask for and accept help and mutual support from vendors, customers and even competitors, in some circumstances.
Not sure if sole proprietorship is the best choice for you? We compare LLCs and sole proprietorships. These are two of the most common business entities.