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Who are the self-employed? What characteristics do they share? What kind of work do they do? Why do they work for themselves? And what problems do they share?
Those are just a few of the questions you may have had if you want to work for yourself or if you want to sell products and services to the self-employed. And, as you may have discovered, finding the definitive answers to those questions is nearly impossible. That’s because self-employment is such an all-encompassing term.
What is Self-Employment?
According to the IRS, the term self-employed applies to anyone who makes money from carrying on a trade or business or is “otherwise in business for yourself.” Under that definition, freelancers, independent contractors, and gig workers are all self-employed. So, too, is the guy in the computer store who does video editing on the side, the young mother who gets paid to “watch” a neighbor’s children after school, and the 15-year-old kid next door who makes money shoveling snow off your driveway in the winter and mowing your lawn in the summer. A business owner who has employees but operates as a sole proprietor could also be considered as self-employed, while the owner of a one-person business that is incorporated technically wouldn’t be self-employed. She’d be an employee of her own corporation.
How Many People Are Self-Employed in the US?
The answer to that question seems to depend on whose statistics you look at. If you disregard sole proprietors who have employees and ignore the fact that there are people who don’t report money they earn on their own, an estimate based on a 2017 FedSmallBusiness survey says that 81% of all small businesses are non-employers.(That means they don’t have any paid employees.) Meanwhile a 2016 report from the US Census Bureau. reported that 24.8 million business “establishments” in the US were nonemployers. The Census Bureau tells us that these nonemployers are mostly “self-employed individuals operating a very small unincorporated business, which may or may not be the owner’s principal source of income.”
Upwork, a website that helps freelancers find work and businesses find freelancers, and Freelancers Union put the number of freelancers much higher than the government figures. Freelancing in America 2019, a report the two organizations jointly commissioned, reports that 57 million Americans freelanced in the last year.
Types of Work Freelancers Do
In a recent survey of site visitors, BusinessKnowHow.com found that many of the people who indicated they had no employees were in service-based businesses. Consulting, coaching, training, writing, internet-related services and marketing were among the most frequently mentioned types of businesses. Business activities that may have started as hobbies such as food preparation, soap making, and jewelry sales were also mentioned. Interestingly, although many people offered marketing related service, marketing one’s own business was cited as one of the top concerns of the self-employed (see below). The industries the self-employed are engaged in, however, all industry classifications according to the US Census Bureau.
What Do the Self-Employed Have in Common?
But when you dig deeper and look at the reasons they work for themselves, and what problems they share, the similarities start to emerge.
For instance, QuickBooks Self-Employed commissioned a survey of 923 self-employed people to determine what separates the self-employed from other people. Among the things they looked at was what motivated the individuals to become self-employed, and why they chose the type of work they are doing.
Motivations for Self-Employment
The most common motivating factors among those who responded to the QuickBooks survey was the desire to build their own business and not have to work for anyone else. Sixty-eight percent of the survey takers indicated that negative experiences such as being laid off pushed them into self-employment. The majority indicated they chose the type of business they are in because they had been doing it as a hobby or it was something they had a passion for or had wanted to do for a long time. Ease of starting their business or the lure of making a lot of money in the profession were among the other motivators.
Similarly, the Upwork study found that the top reasons cited for freelancing were control over one’s destiny, independence, and flexibility. It also found that technology is a key enabler for freelancers. More than three in four freelancers reported that technology has made it easier to find freelance work and 64% had found work online this year.
Most self-employed are home-based businesses. The SBA Office of Advocacy found that 60.1% of businesses without paid employees are home-based.
Both the Upwork and QuickBooks surveys found skills training was important to freelancers. In the QuickBooks study, 94% of respondents indicated they were lifelong learners, while the Upwork survey showed that 70% of full-time freelancers (who took their survey) said they had participated in skills-based training in the last 6 months. The Upwork survey found that freelancers seek training to enhance their skills in technology, networking and business management. The cost of training, however, can be an issue for freelancers who usually have to pay for training themselves.
The annual revenue of the self-employed, for the most part, is modest. According to the FedSmallBusiness report, 71% have revenue of under $100,000. BusinessKnowHow.com found similar unremarkable revenue among the small businesses who completed our visitor survey. While that survey included businesses with employees as well as non-employers, the majority of the survey takers were self-employed or had 4 or fewer employees.
The Quickbooks survey asked the self-employed to indicate factors that contribute to their success. A large majority (84%) indicated that it was hard work, not luck, that led to their success. When asked what separates the self-employed from other workers, the top response was a willingness to make sacrifices.
Biggest Business Concerns
BusinessKnowHow.com ran a survey in Fall 2018 that asked site visitors to indicate their most pressing business concern. When we sorted those responses and looked at those from survey takers who reported having no employees, the biggest concerns were related to marketing and time management. In a question that asked for additional concerns, the top three answers were Internet-related: getting found online, building or improving a website, and managing social media.
Related: 18 Ways to Find Customers For Your New Business
What Does It Take to Succeed in Self-employment?
The Quickbooks survey found that overall, respondents felt that it was hard work, determination, and passion that lead to success in freelancing. Other factors that are important to make self-employment profitable include pursuing self-employment in a field you know, understanding the market for your services or product, treating what you do as a business, and being willing to learn from your mistakes.
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