Millions of the 34 million businesses in the United States are not strong robust companies. In fact, even though they are considered businesses for tax purposes, they might be more accurately considered to be self-employed individuals. Does it matter? Well building a business that creates wealth has an impact is different than simply working for yourself for income. Here we show you the difference.
If you have a business in which you are the only employee, you may be considered to be a business owner by the government. However, there are meaningful differences between being self-employed and having a thriving business. For one, being self-employed means you are your own employer. Typically you don’t have anyone working for you on a part time or full time basis. When you are self-employed, you ARE your business. In other words you work within your business in the same way you work within a company. For instance, many real estate agents and insurance agents are self-employed. Although they work independently and can often set their own hours, they work as individuals that usually conform to a larger organizational structure.
Another difference between being self employed and running a business is business owners tend to focus on growing their business while the self-employed tend to focus on growing their income. Growing income is great but it doesn’t necessarily increase the equity of the business, which is typically what business owners focus on. This is because unlike a self-employment operation, a business is a separate entity.
Think about it like the story of the hen that lays the golden egg. The riddle refers to a man who found that his hen laid one golden egg each day, but wanting to get rich quickly, he killed the hen expecting to find a pile of gold inside, only to find out that there was none. When you are self employed, you are the hen. If you stop working, your business typically dies. When you own the business on the other hand, you own the hen and can make improvements to increase production of the hen, or maybe find other hens that lay golden eggs to increase your profits, or even sell the hen for a lump sum. As a self-employed individual, your revenue is typically tied directly to your work performance, whereas as a business owner, you can always outsource or hire others to do the work, which gives you more time to grow your business. If a self-employed individual wants to get out of their career, they typically walk away with little to nothing to show for it, unless they made other investments. However, a business owner who has built a valuable business can sell the business and make a profitable exit.
Being self-employed is not a negative thing, it can actually be very lucrative. However, it is important to fully understand the difference between self-employment and running a successful business. When you are building and running a successful company you have more long-term advantages and opportunities to build wealth and have impact in the communities you serve as a business owner. At the end of the day the choice is yours, as long as it is an informed choice.