The job market is suffering from a chronic quitting spree economists and historians have dubbed the “Great Resignation.” Now more than ever, people voluntarily leave their jobs to pursue something completely new. Sometimes, these opportunities are with other companies, but often, these workers strike out on their own.
In 2021, 47.8 million Americans will quit their jobs. This averages to just under 4 million resignations per month, the highest monthly average on record. That trend shows no sign of slowing down as 4 million workers or more have quit their jobs during the first several months of 2022.
There are many explanations for the Great Resignation. The workplace is changing. People’s priorities are shifting. Many now prefer to work to live, not live to work. Fifty-three percent of those who have quit changed careers; a large portion chose to strike out on their own.
Starting your own business sounds like a dream come true, but setting up your business legally and ensuring your professional assets are protected is easier said than done. Fortunately, for most of these new founders, starting their own business is as simple as setting up a sole proprietorship.
What Is a Sole Proprietorship?
Sole proprietorships are the simplest forms of organized businesses. Most small businesses start as sole proprietorships.
This type of business organization is great for a new business owner because they take the least amount of paperwork to establish and have very few legal and taxation restrictions. Sole proprietorships also allow the owner to retain all business profits.
But there’s another side to sole proprietorships. Owners of these businesses are personally liable for all debts and liabilities of the company. As a result, they also have fewer financing options, should they need capital.
And contrary to what the name implies, sole proprietors can and often do have employees. They just have to follow all the legal rules, like getting workers’ compensation insurance in Pennsylvania, collecting payroll taxes, and offering benefits.
Insurance is a major consideration for sole proprietorships. Even though these types of businesses are the easiest to set up, they do carry a great deal of liability. So, any owner of a sole proprietorship should do their research to learn more about the types of insurance they’ll need to protect themselves and their business. See step two of the next section for more information about choosing the right insurance.
You can easily start a sole proprietorship. Just follow these four easy steps to get started.
Step 1: Create a Business Plan
You’ve probably heard this before, but it’s worth repeating. Every great business starts with a plan. Not only does planning keep you more organized, but business plans increase your chances of success and opportunities for growth.
Usually, you’ll need a business plan to get business insurance, apply for funding, or even secure a lease agreement for your sole proprietorship. So taking the time to create a plan is well worth the effort.
In your business plan, you’ll choose a name, define the company’s organization, designate positions to hire (if needed), identify your target market, and more. If you need some help getting started, use this free business plan template from the Pennsylvania Department of State.
Step 2: Determine Insurance Needs
Insurance is a must-have for every business, including sole proprietorships in Pennsylvania. But before you decide on a coverage plan, get educated about the types of business insurance and how they can help you protect your assets.
Let’s start with an easy one, general liability insurance. These policies require little deliberation because they are necessary for all business owners. General liability covers unexpected issues from injured employees to damaged property. These policies can also protect you against lawsuits for libel, slander, and defamation.
Workers’ compensation insurance is another easy decision because Pennsylvania law requires businesses to carry it if it has employees. These policies aim to protect both proprietors and their staff by covering costs associated with accidents that cause bodily injury. So if one of your employees falls off a ladder, workers’ compensation will reimburse for costs associated with their medical care, lost wages, retraining, and more.
There is also commercial property and auto insurance to consider. Don’t write these policies off because you have a home-based business and use a personal vehicle for work. For example, if a weather event damages your home office or you get into an accident while driving to see a client, standard homeowners’, renters’, and automotive insurance policies won’t cover your damages.
You need commercial insurance, even if you work from home and don’t have any fleet vehicles, to protect you when the unexpected happens.
And speaking of unexpected, when was the last time you made an error on work for a client? You might not want to admit it, but it happens more often than anyone would like. When it does, professional liability and errors and omissions insurance can cover your losses when you make a mistake. If a client tries to sue you for your error, these policies cover that, too.
But a word of caution. Professional liability and errors and omissions insurance are typically reserved for companies offering professional services like legal counsel, financial advising, or medical care. That doesn’t mean it can’t help other types of businesses, but it is something you should consider before investing in a policy.
Step 3: Get Registered
Now that you have a plan, complete with insurance needs, you’re ready to register your business. Before registering, create a business registration checklist to verify precisely what you’ll need to register in Pennsylvania. Once you’ve completed the checklist, you’re ready to register!
Registering sole proprietorships is pretty easy because of the minimal legal and tax requirements. Just visit the Pennsylvania Department of State’s website to get started.
Step 4: Learn about Licenses and Permits
Depending on your products and services, you may need a special registration or permit to operate in Pennsylvania legally. To find out if your business needs additional licenses or permits, the state recommends contacting their offices to talk with a business registration professional.
Depending on where you plan to operate, your business could also be subject to local permitting, registrations, or zoning requirements. Again, Pennsylvania has a database where you can search your municipality to learn if any apply to you.
Starting a sole proprietorship in Pennsylvania is an exciting prospect, one that’s full of possibilities and promise. Do yourself a favor and take the time to set it up correctly to ensure success far into the future.
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