Starting a New Business: Freelance Vs. Licensed

With job loss at an all time high right now, more and more people are considering being their own boss. For many this may be a temporary solution but for some it could be more permanent. Once you do actually decide that you need a little extra income, you will need to do a little thinking of what that actually means. There are two different approaches to working for yourself. One is becoming a licensed business and filing the appropriate paperwork and the other is to be a freelancer. There are definite benefits to both of these choices. You will need to weigh those benefits yourself.


There are different aspects that you will need to look at when deciding which route you want to go. In some states, you still need to file a business license as a freelancer but they are cheaper fees and less paperwork. There are also some industries that you will need additional paperwork and fees. An example of that is in California you need a license to sell any type of monitor or T.V. screen. Many states have some additional licenses and fees for products sold but for services offered there are little to no fees. A trip to your local Chamber of Commerce, either online or in person, will answer many of your questions.

As a freelancer, you will have the benefit of not filing for a business license. This is a definite choice for those that are only doing work from home temporarily or part time. If the business is not a full time or permanent way of life for you, you stand to gain from freelancing. As a freelancer, you advertise your services or goods yourself and do the work on your own. As a freelancer, you cannot have any employees. You are basically an independent contractor. This means that you work on your own. If you are offering labor services, you can hire additional help on a contract basis. In some states, this makes you a business and you will need to file the appropriate paperwork. The biggest benefit of being a freelancer is that you do not have a lot of tax paperwork. You need to keep a log of what you earned for your taxes but you do not have to report monthly or quarterly. As a freelancer, you also do not have any overhead, hiring restrictions, EO responsibilities, insurance requirements, or any of the other business requirements. It is much harder to advertise and you are not eligible for any government contracts or services. If you are only working temporarily or in certain industries, like IT or writing, then freelance would be a viable alternative.

When you file for a business license, there are many responsibilities that go with it. There are many benefits as well. As a small business, you can qualify for some loans, lines of credit, and local grants. You will also be able to separate your personal finances from business finances. This will allow you to keep you personal goods and investments if the business were to fail. It offers some protections that freelancers do not receive. As a small business, you are also eligible to register with the Better Business Bureau and the Chamber of Commerce. For a Business-to-Business type of field, this could account for half of your sales. This is a big plus for any business. There are many more benefits to registering as a business and filing the appropriate paperwork. If you want to keep your business permanently, you will definitely want to file your business license. A business license can also get you discounts from many other stores. Sam’s Club is one example. They offer extended hours and cheaper membership for the small business owner as well as free web design services and a discounted web hosting service.

Local laws, grants, and loans will play a huge part in your decision to license your business or not. Some states require anyone making over a certain threshold to register as a business, while some have no requirements at all. Many times, grants are only available to those that have a business license. Very few states will extend that benefit to a freelancer. Small business loans also are normally reserved for those with a license. In all instances, freelancers are held to their own credit when applying and are not extended business lines of credit. A quick check with your local Chamber of Commerce can help to clear up many questions. It takes a lot of thought and decision making ability to choose between these two options. Even if you choose to be a freelancer, you should still use business accountability and paperwork. It would not hurt to have a business plan, whether you are required to or not. If you can keep your business and personal life separate and need little to no capital to start, freelance may be the choice for you. If you will need a location and more than one month’s income for capital, you may want to go with a license. Freelance work is usually best for those working in the service industry. If you have a marketable skill, you are better off selling it in the freelance community. If you are selling a physical product, you would benefit more from a business license.

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