The path to self-employment or the entry into professional independence requires a business start-up. Remaining self-employed is not only characterized by avoiding failure, but in the positive case by a secure, comfortable existence. Going for self-employment is, in the hoped-for case, the transition of the founder and entrepreneur into retirement. What is so easy to read is in reality a mixture of planning , implementation and fate.
Introduction: the path to self-employment
Everyone who has to provide for their own living has to start working. At this moment, one has to make the decision whether he wants to be self-employed or dependent. It is not easy to fell because it seems emotionally charged. It does not consist of the alleged choice between high income on the one hand and job security on the other. So it is a directional decision on how private existence is to be secured in the future.
The decision must therefore primarily illuminate the personality structure of the decision maker and analyze his strengths and weaknesses. Is the decision maker entrepreneurial or not? The basis of the decision is the willingness of the potentially self-employed person that he wants to take responsibility independently, and constantly.
If the assessment is positive, the self-employed person needs a business idea that he wants to realize on his way to self-employment. But it is not the entrepreneur himself who decides on the success of his self-employment, but his customers. He is now self-employed, but from this point in time, at the latest, his stability is required until he leaves his own business. Self-employment is a busy, weekend-long process that is not free from risks and whose success cannot be guaranteed.
This article is intended to present professional independence comprehensively and encourage those interested to start self-employment .
Definition of self-employment
Professional independence is one of the employment activities. The path to self-employment is initiated by setting up a business. This makes the self-employed owners or co-owners of the companies in which they work. Your working family members are also statistically recorded as self-employed; they make up ten percent in the statistics. The European definition of self-employment ends with this list.
Further criteria for independence
“You are self-employed if you are essentially free to organize your work and determine your working hours.” This formulation results in the following characteristics for a self-employed person :
- He calculates his prices himself.
- He determines the method of payment.
- He determines the use of the resources.
- He invests in resources such as office equipment , machines or vehicles for his own account.
- He can employ workers .
- He is liable for defects.
- He acquires his own customers .
- He does marketing and advertising in his own right.
- He has his own homepage , his own letterhead or business cards .
- He maintains his own business premises, which can also be a home office.
- He does not make any compulsory social security contributions.
- He pays no wage tax, but trade tax, sales tax and income tax.
- He may have registered a business.
- It can be entered in the commercial register.
- He receives a performance-related fee.
- He determines his vacation himself.
Since not all criteria have to be met, each case of self-employment must be examined separately in case of doubt. If the characteristics mentioned predominate, it can be assumed that you are self-employed.
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Types of self-employment
The future young entrepreneur has to align his planning according to the criteria mentioned in order to realize his independence. In the next step he has to decide in which kind of self-employment he wants to start his business.
Full independence is the rule among the types of independence. The future self-employed intends to set up a business with which he wants to shape his professional life in an entrepreneurial manner. In addition, it should be the financial basis for his private existence. He wants a fundamental change in his professional life and the start of an uncertain, self-determined future. He subordinates not only his business but also his private existence completely to this wish. He relies on his full independence. The following occasions can determine the path to self-employment or the entry into full professional independence:
- A brilliant idea that the self-employed would like to implement in a business model by founding a start-up is the classic case for starting full self-employment.
- The self-employed person’s thirst for freedom is another possibility. He exchanges his externally determined, instruction-bound activity for a free entrepreneurial self-realization. Its integration into an operational order should give way to the self-determination of everyday work. The self-employed would like to determine their own income and not be dependent on fixed salary payments from an employer. Irregular cash receipts are part of his entrepreneurial freedom. He prefers uncertain independence to a secure job.
- The constraints of the labor market can have such an effect that they leave the young professionals no choice but to set up their own business with their know-how. What applies to entering the market can also be the basis for continuing one’s professional career. For better or for worse, the market thrusts its participants into full independence. Although starting a business seems inevitable in such a scenario, it does not have to be doomed to fail, but can be a salutary impetus for successful self-employment.
- Full self-employment is not the worst alternative to a way out of unemployment. That is why the business start-up is supported by the Employment Agency. Outplacement consulting also uses the presentation of the possibilities that lie in self-employment as a consulting tool for the professional reorientation of its clients; because the dismissal can be understood as an opportunity.
This list of possible reasons for switching to full self-employment is not exhaustive, but it is encouraging for anyone who deals with this topic.
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The part-time self-employment is a variant of self-employment, which differs fundamentally from full independence only by the time limit. The entrepreneur needs for his part-time job that is also business idea, a business plan and a viable business model; otherwise he will fail like the fully self-employed.
However, he falls “softer” because his existence is secured by the income from his main job. With now 60 percent of all business start-ups, part-time self-employment has impressively established itself as an alternative to full self-employment.
The part-time self-employment occurs in two variants, namely as an independent professional field and as a transition stage to full independence. If the second alternative is chosen, the entrepreneur has to observe the following information:
- It is recommended that every business start-up coordinate their part-time self-employment with their employer.
- The part-time self-employment must not influence the full-time activity. The fulfillment of the employment contract takes precedence over the obligations arising from part-time self-employment; because the employer is entitled to full work.
- The employer is entitled to the contractual working time; he has to monitor compliance. The self-employed part-time worker may not use his vacation or absence from work due to illness for the purposes of his part-time job. Both times, the remuneration of which is regulated by the employment contract, serve to relax and restore his workforce.
- The official registration obligations apply to part-time self-employment to the same extent as they are prescribed for full self-employment. The part-time job does not trigger any benefits.
A start-up should always check whether part-time self-employment is an option for it.
Small business self-employment
Small-scale self-employment can be exercised as full or part-time self-employment. The difference is that independence can be used to its full extent, but its content is limited.
It can remain in the scope selected at the beginning, but can also be used at the start of a larger undertaking. From the point of view of intensity, small-scale business start-ups should be pursued with full commitment, because the limitation in terms of content has no influence on the business idea, business model and its effectiveness in professional practice.
Small business self-employment is promoted through legal relief, so that the freedom of business guaranteed in the Basic Law in the everyday business of the content-restricted small business is secured. It is characterized by the following features:
- Business: Small business self-employment is aimed at long-term entrepreneurial profit. It has to be communicated to the outside world.
- Small: The size is limited to an extent that is not covered by the requirements of trade laws and other special standards.
- Statutory provisions: Small business self-employment is covered by provisions of civil law, trade regulations, social law and tax law.
- Legal form : Your legal forms are the sole proprietorship and the civil society.
- Completion: The small business self-employment is done through growth in the large business, by entry in the commercial register and by renouncing the legal relief of the small business.
Small-scale business start-ups have many advantages that not only facilitate the start-up itself, but also further independence.
Small business self-employment
The small business independence is based on the sales tax scale. It is often confused with self-employment in small businesses.
- Small business self-employed can be all types of traders and freelancers.
- Small business sales are determined by statutory maximums. Small business owners can waive their small business status by opting for sales tax.
Freelance self-employment is entrepreneurial self-employment that is geared towards making profit.
- Trade regulations: According to the trade regulations, freelance self-employment is basically a commercial self-employment. Doctors, lawyers and other activities that are carried out on a freelance basis and are exempt from trade tax are excluded.
- Gray area: The list of freelance activities in commercial law and tax law is supplemented by a gray area that arises from the discretionary scope of the tax offices. You can decide who has a “job similar to the free occupation”. Every self-employed person or entrepreneur who wants to be recognized as a freelancer should seek advice from a professional.
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The pseudo self-employment is an often underestimated or unrecognized phenomenon. It is an independence that is not because the person who wears it lacks self-determination. On the other hand, he can legally be considered self-employed, although he works under instructions.
Employees are treated like self-employed because the employer wants to save the health insurance contributions. If such a deficiency is noticed, the health insurance companies can claim the withheld contributions for up to four years. The defaulting employer can be threatened with operational failure due to the amount of the additional payment.
Family members can be employed in family businesses, but they are self-employed.
For the assessment of whether a bogus self-employment is given, the overall view is decisive. The following points speak in favor of bogus self-employment:
- The bogus self-employed person has no decision-making authority of their own.
- He wears his employer’s work clothes.
- He does not have a business account.
- He does not have his own business premises.
- He has no business letterhead.
Based on the types of self-employment presented, start-ups and entrepreneurs are able to choose the basis of their self-employment.
Types of business start-up
Self-employment can be achieved through various types of business start-ups .
Around 70 percent of all start-ups decide to start a new business on the way to self-employment; because you can determine the concept and its implementation yourself, without having to consider the legacy of predecessors.
The takeover of a business can establish self-employment in three ways:
- Purchase: With payment of the purchase price, ownership of the company is transferred to the self-employed.
- Lease: With the payment of the lease, the self-employed person takes over the operation in full. However, the property remains with the lessor.
- Family succession : The successor is the legal successor to his family predecessor in the company. The rule is the generation change; therefore the scope of independence is determined in terms of inheritance law and gift law.
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Management buyout (MBO)
The self-employed person buys the company in which he is employed. Due to his internal knowledge as a former employee, he does not need any time-consuming training as an entrepreneur.
With the spin-off, a business area is made legally independent. If this part of the company is sold, employees in the MBO usually become self-employed.
Management buy-in (MBI)
The self-employed takes over the company as an external manager; his knowledge and experience in management form the basis of this construction.
The self-employed has the advantage that, as a franchisee , he can use the concept of an established franchise system. The franchisor has a contractual influence on the organization of the business; however, the franchisee remains independent.
Small start-up in part-time job
With a small start-up as a part-time job, many start-ups start their own business. The effort for the establishment and the entrepreneurial risk are limited.
The sham foundation of a company does not lead to professional independence. The supposed entrepreneur continues to work for his employer.
Legal forms of self-employment
Professional independence requires a legal form if it wants to participate in legal life.
With the opening of a business start-up by a single self-employed person, a sole proprietorship is automatically created. It does not require equity; there is liability with the private assets of the self-employed. The decision-making authority lies solely with the self-employed. If the self-employed person wants to limit his liability, he can reorganize into a one-person GmbH.
Society under civil law (Civil Law Partnership)
Several self-employed people can join forces to form a Civil Law Partnership. A partnership agreement is not required, but it makes sense. A minimum capital is not required. All partners are liable with the company’s assets and their private assets. If the Civil Law Partnership is entered in the commercial register, it becomes an open trading company (General partnership).
Open trading company (General partnership)
The General partnership is the commercial law counterpart to the Civil Law Partnership.
The partners of the limited partnership are the general partners who run the business and are liable with their private assets, as well as the limited partners who are only liable with their limited partner contribution.
It is a special society for the self-employed who belong to the liberal professions. The partners are liable with their private assets.
Partner company with limited liability
Here, the amount of liability is limited to the amount insured under professional liability insurance .
Limited Liability Company
Self-employed people who want to limit their liability can set up a Limited Liability Company. The self-employed can run the business themselves or hire external managers. The share capital to which liability is limited is at least 27,000 dollars. In practice, banks are not satisfied with the limit when granting loans and require additional collateral.
Entrepreneurial company (limited liability) (UG limited liability)
The UG (limited liability) is a variant of the GmbH that is suitable for founders of small companies. The minimum capital to which liability is limited is 1 dollar. Until the liability amount of 27,000 dollars is reached, 25 percent of the annual surplus is saved. The company contribution may only be made in cash.
(Small) stock corporation (AG)
The AG is suitable for the self-employed who want to raise capital easily. Establishment and management are time-consuming; Therefore, the small AG can be chosen, in which the self-employed may be the sole director and sole shareholder at the same time. However, it requires at least three supervisory boards.
Registered cooperative (eG), limited liability
The eG is suitable for founding teams and as a cooperation model for medium-sized companies. Three founders are required; the cooperative contribution serves as liability.
When the self-employed person has familiarized himself with the basics of self-employment, he can start setting up a business.
Development of the business idea
The development of the business idea is the basis of any self-employment. It must contain the description of the product or service, a representation of the market and the intended customer benefit. It has to be unique and clearly differentiate itself from the competition.
Establishing without a business idea
Potential self-employed who want to start a professional existence without a business idea can seek advice from relevant experts. It is of course impossible to start a business without a business idea; but the consultants are able to develop a viable idea together with these interested parties by helping them to help themselves.
Analysis of entrepreneurial skills
As soon as the business idea is found, the entrepreneur has to analyze his skills as an entrepreneur.
- Technical knowledge: The technical orientation includes the commercial knowledge and the special knowledge necessary to realize your idea.
- Personal skills: The personal skills of a self-employed person are self-motivation, willingness to take risks, resilience, goal orientation and assertiveness.
- Entrepreneur type test: To assess entrepreneurial skills, entrepreneurs can take part in entrepreneur type tests.
Preparation of the business plan
The core of every business start-up is the preparation of a business plan. It is used to convert the business idea into a business model.
- Executive summary : The business plan begins with the executive summary, which should give the addressee a quick and clear overview of the start-up.
- Business Idea : The main characteristics of the business idea are explained taking into account the customer benefit. The customer problems are described and their solution is explained through the business idea.
- Marketing plan: The marketing plan contains a market analysis, the marketing objectives and the marketing strategy. The marketing instruments and the measures with which the strategy should be implemented in concrete terms are described. The conclusion of the marketing plan is a list of the necessary key figures.
- Financial plan : The financial plan begins with the calculations of the result, the cash flow and the balance sheet. This is followed by a requirement calculation for the required equity and debt capital as well as for liquidity. The information is spread over a period of three years, which should contain the break-even point.
- Company organization : Organizational chart , legal form , personnel planning and location are the essential topics for company organization, which can be supplemented with information on production and storage.
- Opportunities and risks : The next chapter is devoted to the opportunities and risks of starting a business.
- Realization : The conclusion is a representation of a process plan in which the individual steps of the foundation are recorded. If recognizable, points of deceleration or acceleration are marked.
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The self-employed have the following options to finance their business start-up:
- Bootstrapping: Bootstrapping, i.e. financing exclusively with equity, is the most convenient option. It gives the founder a free hand, but can also lead to cost pressure.
- Loan financing : For long-term financing, a loan from the house bank is a good option. However, at least 20 percent equity is required.
- Crowdfunding: Self-employed people who do not want to have anything to do with banks can use crowdfunding. The loan requirement is registered on a platform for crowdfunding, which arranges a “crowd financing”.
- Subsidies: Development banks support start-ups with long-term loans at low interest rates. Advice helps to find the right programs.
- Start-up competitions: Receiving prizes in start-up competitions is not easy for the self-employed, but it is possible to make further contacts.
- Venture capital and business angels : The self-employed can receive venture capital if high returns can be expected from their establishment. Business angels can get less capital, but money-worthy advice.
Realization of independence
The realization of self-employment begins with these measures:
- Have discussions with banks and financiers, preferably accompanied by an advisor
- Go to the authorities
- Register establishment
- Set up a business account
- Take out insurance
- Regulate health insurance and pensions
- finish contracts
- Define location
- Find staff.
The independence in entrepreneurship
With the completion of the business start-up, the self-employed has arrived in entrepreneurship. With immediate effect, he is in competition with his direct competitors, with whom he is fighting to sell his products and services to mutual customers. He is also surrounded by a number of companies running into the millions that have long been involved in business life with completely different and very different company biographies.
Economic life and not the theoretical model that dominates his business plan becomes the focus of his entrepreneurial life for the self-employed. Key figures made predictable alone will not influence the success of the self-employed; Instead, actual events such as customer insolvency, loan refusals due to lack of collateral or breaches by competitors of trademark regulations will have a negative impact on the business result.
Theory will meet reality, constantly and in unpredictable ways. This is not a one-off event that the young entrepreneur encounters when entering the market. It is about an incalculable process that the self-employed person is exposed to throughout his entire business life. Due to the confusion and diversity of entrepreneurship, the following explanations can only throw some spotlight on entrepreneurial independence.
Even if there are various deterrent numbers circulating about the failure of business start-ups in the first years of their self-employment, the failure of economic existence is not reserved for young entrepreneurs. Since self-employment always means risk, failure can affect any entrepreneur. Therefore, some avoidable mistakes should be addressed:
- Mistakes in sales planning: sales are not only planned incorrectly by start-ups. The most common mistake is overestimating. Beginners may lack the necessary experience, the seasoned entrepreneurs are often guided by the principle of hope and plan sales from customers who are in reality “on the brink”.
- Mistakes in the organization: A clear organization of the hierarchical levels, the decision-making powers and the work processes is the basis for effective economic action. If it gets mixed up, if it becomes confusing or even deliberately disturbed, the beginning of failure is not far away.
- Mistakes in project management: The biggest mistakes in project management lie in the misjudgment of the time required for product development and its placement on the market. Too short an approach will lead to the project underfunding when the product is finally mature. Failure is not far from lack of money.
Update business plan
The business plan is the basis of every business start-up. It is the collection of all the thoughts of the self-employed that he wants to put into practice in his company. Its implementation in the founder’s startup is still pending. As soon as the business plan has been approved by the donors, it has cleared the first hurdle.
With the entry into self-employment, he has to face the test in business life. The founders must be companies according to its business plan in the context of customers and competitors position. The plan is to be adapted to the actual circumstances, i.e. to be updated under practical conditions. This process initially affects the first few years of business start-up and lasts at least as long as the obligation to report to the donors continues.
The updating of the business plan contains important information that is important for the management of the company. It is therefore unwise for the self-employed person to dispense with the fundamentals gained in this way. The fundamental importance that the business plan has for starting a business is also due to its continuation for the development and establishment as a company.
Carry out positioning
The positioning of the company is an important task that the self-employed person has to undertake every three years. However, it is often neglected because start-ups and long-term entrepreneurs lack the necessary inner distance to assess their companies. A SWOT analysis would prove you wrong, because the strengths and weaknesses of a company and the associated opportunities and risks can shift unnoticed.
The self-employed must adapt the marketing of his company precisely to changes in customer behavior. The magic words for products are showrooming and webrooming. With showrooming, the customer finds out about the products in the store in order to later buy them cheaper online. Conversely, he informs himself extensively in webrooming and still buys in the shop. According to a study, 60 percent of webroomers also did showrooming and 90 percent of showroomers occasionally did webrooming. The trend is towards webrooming; he can just as easily turn back. That is why the self-employed must adapt their classic marketing and online marketing to the movements of their customers.
Track Search Engine Optimization (SEO)
With search engine optimization (SEO) , the self-employed have to ensure that their advertising and PR texts are well placed on the Internet. But SEO is a process; because the keywords are constantly changing in terms of content and order. Entrepreneurs who are dependent on the right keywords should therefore continuously educate themselves in the area of traffic strategy and Google keywords. Google, which generally does not reveal its SEO parameters, continuously adapts its criteria to the reading needs it has identified. Customers on the Internet feel more annoyed by advertising statements than traditional customers. Customer magazines don’t get caught in them. That is why corporate blogging has developed, which almost completely dispenses with advertising statements from companies and is very popular with Google.
End of self-employment
Self-employment can be ended in different ways.
- Task of the business : The company is logged off; the last orders are being processed.
- Termination against payment: Self-employment ends with one of the variants of selling the company. A company valuation must be carried out beforehand.
- Free termination: the company is given away or inherited.
- Insolvency: A company becomes insolvent in the event of insolvency, impending insolvency or over-indebtedness. Bankruptcy does not automatically mean the end of the company through liquidation; it can also be requested for renovation.
- Termination through death: Self-employment can be terminated through death. If the self-employed person has not taken precautions in the event of death, legal succession occurs. With foresight he can draw up a company will to regulate his succession. Since the death of a person only shifts the ownership structure, he may be eliminated from life, but the company continues to live with new ownership.
- Serious illness: A serious illness can mean the end of self-employment. The management ability of the company can be secured through different dispositions.
How things go materially with the self-employed depends solely on their personal circumstances; because the termination of self-employment has nothing to do with retirement age. Whether the self-employed is looking for an early exit or wants to enjoy the pension until the end of life, provided that he has acquired entitlements through old-age provision, is solely the responsibility of the self-employed.
Before someone decides to become self-employed, they have to familiarize themselves with the details. He has to choose the type of independence that suits him and check whether his character is suitable for self-employment. The legal form must also be determined. The establishment process starts with the development of a business plan based on the business idea. Once the individual steps to starting a business have been completed, the self-employed person begins to enter business life and the “laboratory phase” ends. His startup has to prove itself in reality and survive the critical times of possible failure. This is followed by the existence of the self-employed as an entrepreneur, which has ups and downs in store for him. Therefore, further training and acceptance of business challenges are the conditions for business success. The entrepreneur should decide how and when he thinks it is right to leave self-employment. He is not responsible to anyone for his decision. If he chooses the retirement age, the old-age provision should be right, but the material resources are also solely a matter for the self-employed.