Are You a Freelancer or a Small Business?

Not sure whether you should label yourself a freelancer or a small ­business owner? The two concepts are very similar in many ways, but there are some distinct differences that should help you figure out what to put on your next batch of business cards.  

Time is of the essence  

The key to determining whether you’re a freelancer or a small business owner is the way you spend your time. One useful way to evaluate the difference is to ask whether your business would continue operating if you stepped away from day-to-day work. Entrepreneurs and small-business owners often rely on employees, automation and systems to generate revenue. Freelancers, on the other hand, typically depend on their own labor. If you’re a freelancer, not working essentially means not getting paid.  

You may qualify as a small business owner if much of your time is spent managing the work of others. That doesn’t mean you never do your own work. Many small businesses require the owner’s direct input to function, but they also have a team and a system in place that allow the owner to step back when other priorities require attention.  

Who do you work for?  

Another way to decide whether you’re a freelancer or a small business owner is to consider whether you feel like you’re working for someone else. A freelancer may become dependent on certain clients because that is where the income comes from, which can make the work feel less independent. While small-business owners also serve clients, they are more likely to feel in charge of their time because they set schedules, manage deadlines, and assign tasks to meet business needs.  

The distinction also shows up in the products or services you offer. When you freelance, you use your skills to create work that often meets the specific needs of an employer or client. If you’re a small-business owner, the product or service you offer is more likely to be based on what you choose to create. The same can be true for entrepreneurs, whose ideas or solutions are their own and whose customers buy based on what they produce.  

What is the difference at tax time?  

Apart from how you present your business, the practical distinction between freelancing and running a small business often comes down to how you file your taxes. There is a substantial gray area between self-employment, freelancing, small business ownership and entrepreneurship. Because these terms are often used interchangeably, the most important factor is making sure your tax filings accurately reflect how your business operates.  

However, you’ll want to make sure that you’re crossing all your t’s and dotting all your i’s no matter how you classify yourself. For this, consider acquiring the services of a dedicated tax professional. This will be especially helpful if you’re new to freelancing or business ownership and will ensure that you don’t wind up having to deal with an IRS-­induced headache somewhere down the road.  

The differences between being a freelancer and a small­ business owner come down to what you do, who you do it for and how much help you have along the way. No matter the designation, presenting yourself with confidence to clients and customers will help you generate business and keep your enterprise moving forward. 

Here to help 

At Five Star Bank, we are proud to offer small business services, tools and resources that helps your operations grow and thrive. Reach out to us today for advice and personalized support. 

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