For many, working for yourself sounds like a dream. If your goal is to own and operate your own business, you’ll need to set up a sole proprietorship.

Sole proprietors have complete control of their businesses — receiving all profits and managing their own liabilities. This guide explores how you can establish your own sole proprietorship.

Sole proprietorships are not separate entities by law, so it’s considered one of the easiest types of businesses to start.

Unlike corporations or LLCs, you don’t have to register with the state. However, you must acquire appropriate permits and licenses to operate legally, and you are personally liable for debts, lawsuits, or taxes your company accrues.

Most businesses in the United States are sole proprietorships. Many entrepreneurs love sole proprietorships because of the ownership they have over business decisions and revenue. These businesses are also easy and cost-effective to set up.

So, how can you start a sole proprietorship? There’s an step-by-step guide for you below.

Now that you have the tools to create a business plan, let’s go over the definition of a sole proprietor and the types of sole proprietorships one would typically launch.

A sole proprietor may operate as an independent contractor (a freelancer), a business owner, or a franchisee.

Franchisee: Franchise owners may also be sole proprietors. The franchisee benefits from the guidance and business model of a larger brand. In exchange, royalties are paid to the franchisor.

If you want to launch a new business from scratch or you have a side hustle you want to convert into a full-time business, you should consider registering as a sole proprietorship. Here are some steps you can take to get started.

First, is starting a sole proprietorship right for you? Or should you launch another type of business?

Once you’ve determined a sole proprietorship is right for you and your business, it’s time to talk to the experts.

In many cases, you’re required to separate business and personal funds. A DBA is often necessary when opening a bank account or credit card for your business. Your state might also require follow-up steps after registration.

Most commonly, you’ll be required to publish the name you’ll be doing business under publicly — and then provide proof of publication to your local government.

A DBA also ensures no one else in your county is doing business under the same name. Bottom line? Register your DBA, and do it soon.

Do the legwork upfront and find out what licenses and permits you need. The fees you’ll pay during this process are nothing compared to the fines you’ll pay if you haven’t filed the right paperwork.

You want to be able to prove to the IRS that you’re running your business to make a profit. This ensures the losses you experience during the first few years will remain tax deductible.

It’s also wise to build a good credit history before starting your business. While credit cards can help you out in your company’s early days when cash flow is low, the interest adds up quickly and can easily become overwhelming.

A personal loan is often a better option. However, a good credit history is necessary for securing a loan of this type.

Because one of the biggest risks to starting a sole proprietorship is the liability, having adequate insurance is a must.

Consider property and liability coverage, auto insurance, health coverage, and disability coverage at the very least. This can get expensive, but it ensures you and your personal assets are protected from lawsuits and professional setbacks, should they arise.

Remember, because you’re self-employed, your paychecks don’t have proper withholdings taken out at the time you’re paid. Instead, you can expect to pay quarterly estimated tax payments. You’ll then cover the difference or receive a refund for any shortage or overage come tax season.

Because of this, you should set aside money from each paycheck to cover those quarterly and annual expenses.

The main appeal of a sole proprietorship is the freedom and flexibility it provides for the owner. This is especially true of new entrepreneurship and people looking to scale their side hustle.

Whatever the situation is, sole proprietorship has many advantages. Here are a few common benefits.

As a sole proprietor, you are fully responsible for making choices and decisions for your business. As opposed to a partnership or an LLC, you don’t need to consider the opinions of shareholders or legal partners. You are free to steer your business in any direction you think works best.

A sole proprietorship is much easier to set up than other business forms.

As a sole proprietor, you don’t have to think about legal contracts with other business partners. You also don’t have to do other laborious tasks that other business enterprises require, like giving stock to shareholders or choosing a board of directors.

You do, however, have to get the necessary licenses and permits to legally run your business, such as sales tax permits and zoning permits.

The licenses and permits you’ll apply for depend on the type of business you want to run. Check with your local or state government to learn exactly which ones you’ll need.

Starting a sole proprietorship is free for the most part. Of course, you’ll have to pay to register your business name, get your business domain, and get the necessary licenses or permits, but you won’t pay the $1,000 average cost of starting an LLC.

This is great if you’re working with a tight budget because you won’t have to invest a lot of money into the business before you begin operations.

Sole proprietorships have fairly simple and straightforward tax requirements compared to other business entities.

In terms of tax filing, sole proprietorships are taxed as a pass-through business entity. This means that the business’ profits and losses are reported on your personal income tax return. So you don’t have to pay separate taxes for your business.

For example, if you use your own home as your business base, you won’t have to pay more money on space, utilities, and internet. This reduces your personal taxes. You might even get a tax refund when you file your personal tax return.

As a sole proprietorship, you can also take advantage of some tax deductions. For instance, the Tax Cuts and Jobs Act of 2017 allows sole proprietors to deduct 20% of their net income from their taxes.

Additionally, there’s no distinction between the owner and a sole proprietor. Therefore, the IRS does not require separate accounting records for the business — including balance sheets — as part of their tax return.

As a sole proprietor, you’re in charge of all aspects of your business, including revenue. You decide how much you want to pay yourself and contractors (if you have any). You’ll also choose how much you want to pour back into the business.

As with all business models, sole proprietorships have disadvantages as well. Here are some of them:

As a sole proprietor, you are responsible for the financial aspects of your business, including taxes, contractor wages, and any legal contingencies. What’s more, sole proprietorships don’t offer legal protection over your personal assets if you get into financial trouble.

This means that if your business is sued or you have to file for bankruptcy, the court has the right to seize your personal assets to cover these expenses. That includes your savings, home, cars, and other belongings.

Sure, insurance coverages can help with this, but they’re not foolproof.

While the initial costs of starting a sole proprietorship are low, raising capital to finance the business can be difficult. That’s because banks prefer to support incorporated businesses.

Banks consider the sole proprietorship model to be risky, as the owner’s personal assets are usually limited and can run out at any time. Financial institutions are usually reluctant to issue credit or give out loans to sole proprietors for fear that they won’t be able to repay them.

Sole proprietorships may also struggle to get buy-in from investors, as they’re not designed to have shareholders. Without loans and investments, it’s harder to take a sole proprietorship to the next level.

As a sole proprietor, you are liable to pay a self-employment tax of 15.3% (12.4% in Social Security taxes and 2.9% for Medicare) on all income generated by the business.

While the 12.9% Social Security taxes are constant, the Medicare tax rate increases by 0.9% once you cross certain threshold levels. In the long run, this tax can become significant.

It’s not uncommon for potential investors and clients to view a sole proprietorship as less professional than a corporation or LLC. They may also be wary of doing business with an individual, as opposed to a separate legal business entity.

Sole proprietorships are a great choice for people who want to turn their side hustles into something a little more serious — and lucrative. A variety of businesses are operated as sole proprietorships.

Here are some common examples.

Business owners are busy. They don’t want to hire an office assistant, especially because most tasks can be done online. Enter the virtual assistant.

As a sole proprietor running a virtual assistant business, you’d handle tasks such as bookkeeping and database entering for other business owners.

Daycare operators run small, affordable daycare facilities for parents who can’t afford expensive day schools or a dedicated nanny. A background education would be helpful before creating a daycare business.

You could, alternatively, found a dog daycare, or a daycare for the elderly.

Graphic designers create beautiful things: landing pages, brochures, flyers, and social media ads. As with digital marketing, you should specialize in either digital or print graphic design, and target certain industries that interest you. Creating a banner for a hair salon would be much different from creating one for an engineering firm. You’ll also need a graphic design portfolio.

Have you ever run into IT problems? So do countless businesses. As an IT consultant running your own business, you would offer IT troubleshooting services to other companies. You’ll also resolve issues with both the company’s hardware and software solutions. Be open to traveling for this type of sole proprietor business.

As a freelance writer with a sole proprietorship, you would target brands that need content written for them. These may include nonfiction articles, news articles, blog posts, website pages, and social media ads. As with digital marketing and graphic design, consider specializing in one writing form.

Freelance copy editors edit someone else’s writing for clarity, concision, and effectiveness. These editors proofread someone else’s work for errors. They also focus on the flow and cohesion of ideas.

You can either go into fiction or nonfiction copy editing. Alternatively, you can become a copy editor specifically for websites and blogs

Nonfiction book editors typically review highly technical or specialized material for flow, accuracy, and logic. These editors are different from other types because they exclusively specialize in manuscript-length works and have an advanced degree in the topic they specialize in.

Fitness coaching is a great choice if you have a passion for fitness. This type of sole proprietor typically targets gym goers — or those who’d like to start — to help them reach their fitness goals through a customized program. A degree in exercise science would be beneficial, as well as a certification in fitness coaching.

Housekeepers clean houses with more thoroughness than a busy homeowner would. Tasks include mopping, sweeping, taking out the trash, washing dishes, and doing laundry. For optimal success as a sole proprietor, you should target a small geographical area to pitch your housekeeping services.

Landscapers mow lawns, trim bushes, check the soil’s health, and do everything related to backyard and front yard maintenance. You can offer something simple, such as lawn mowing, and slowly add more services as you gain more advanced land care knowledge.

Like cooking? Then a catering sole proprietorship may be for you. Caterers cook large amounts of food for other people’s events and typically take care of delivery and setup. Instagram is a great platform to spread the word about your business.

An alternative sole proprietorship for those who enjoy cooking would be a baking business. You can either specialize in sweets or savory goods, or offer a mixture of both. While we often associate bakers with brick-and-mortar bakeries, you can operate this business out of your home and arrange local pickups.

As a freelance accountant, you would work with small-business owners and audit their inflow and outflow of cash. Be sure to be proficient in at least one accounting software, such as QuickBooks or FreshBooks.

Tax preparers target individuals who find tax return documents inaccessible and difficult to fill out. This is one of the easiest sole proprietorships to launch, as there are no education requirements. A course in tax preparation is all you need.

Document assistance is in a similar vein to tax preparation. You would help individuals fill out highly complicated forms — such as immigration applications, visa applications, and unemployment claims. You may also submit them on your client’s behalf.

Proficiency in another language would be beneficial, as those who need assistance are typically non-English speakers.

Resume and cover letter writers serve those who have a disparate collection of job descriptions, roles, and skills. They then turn the information into an effective resume. A background in writing would be beneficial if you plan to launch this type of sole proprietorship.

As a sole proprietor with an event planning business, you would handle all facets of the event planning process. That includes finding a venue, caterer, decorator, DJ, and event furniture supplier. You’ll typically handle part of the event setup as well. One particularly lucrative specialization is wedding planning.

Freelance photographers take photos and video footage of virtually anything that clients want to capture. As with most business types on this list, you should specialize. A corporate photographer takes photos of a company’s staff. A wedding photographer takes photos of a wedding in an artful way. A maternity photographer takes maternity shoots. These three require different skill sets, so choose the one that best matches your background.

As a standardized test tutor, you would coach high school and college students to improve their scores on the SAT, ACT, GRE, GMAT, or LSAT standardized tests. You should specialize in one or two tests.

Be sure to advertise the high score you received on your website. A background in education would be helpful.

You can start a translation business if you have advanced or native proficiency in a language other than English. Businesses, churches, and schools need translators to communicate with non-English-speaking clients or groups. You can start this type of business without a degree, but certification would be beneficial.

Starting a business as a sole proprietor is one of the biggest choices you’ll ever make. Though the risk is great, so is the reward. The best part is that you can start it on your own without leasing a building, hiring others, or requiring expensive training. With the steps shared in this post, you’ll build a strong foundation to ensure lasting success.

Editor’s note: This post was originally published in September 2018 and has been updated for comprehensiveness.