Scaling Up Your Small Business: How to Grow From a Sole Proprietor Into a Business with Employees -
Scaling Up Your Small Business: How to Grow From a Sole Proprietor Into a Business with Employees
Scaling Up Your Small Business: How to Grow From a Sole Proprietor Into a Business with Employees

It is not mega-corporations with unfathomable operating budgets and sky-high profit margins that power the US economy. It’s the corner shop, the neighborhood contractor, the one-stylist salon that provide the fuel. Small businesses are the undeniable lifeblood of the country. Some 24.8 million hardworking, determined, innovative, and creative folks are “solopreneurs,” and they account for an astonishing 73.1% of all US businesses.

As critical as sole proprietorships are, it is equally important that owners set themselves up for sustainable growth and success. Is it time for you figure out how to scale up your small business? How do you go from a one-man/woman show into a business with employees?

How to Grow from a Sole Proprietor into a Business with Employees

Start with Structure

Sole proprietors can hire employees (and must take care of the requisite taxes). So, yes, it is possible to scale up your business in terms of your team without changing your status as a sole proprietorship. Remember, though, this isn’t technically a business structure.

If you are ready to add employees to accommodate growth, it makes sense to start by taking a good, hard look at your structure. LLCs (Limited Liability Company) are the most common business structure, and there are a variety of benefits to help with scaling your small business, including:

  • LLCs are suitable for businesses with one owner, as well as those with co-owners.
  • They offer personal asset protection. In other words, you are not personally liable for your business’s debts or most lawsuits. So, for example, if a creditor goes after assets to recoup on a debt, they cannot touch your personal bank accounts, home, car, etc.
  • LLCs provide “pass through taxation.” Business profits or losses pass through the business to your personal tax return and taxed at your personal tax rates. You can qualify for a special pass-through tax dedication under the Tax Cuts and Jobs Act.
  • You can also choose how you want to be taxed. This may be as a sole proprietorship or partnership, but larger LLCs may find it beneficial to be taxed like a corporation.
  • LLCs are relatively simple structures. You don’t need to have a board of directors, shareholder meetings, or other administrative hassles that come along with corporation structures.
  • LLCs build credibility with your clients/customers. It assures them that you are a real business. Not that you weren’t before, but three little letters after your business name can establish a greater level of trust.

Now, of course this is more complex than a few bullet points, and there are other business structure options to consider (like partnerships, limited partnerships, corporation). Sit down with your business attorney to determine the best route in order to maximize profitability while minimizing liability while you grow your business.

Cross Your T’s and Dot Your I’s When Scaling Up Your Small Business

Hiring employees is an exciting time in a business’s life! But… before we get to the fun stuff, you’re going to need to take care of some less enthralling details, like:

  • Obtaining an Employer Identification Number and determining whether you need state or local tax IDs
  • Registering with the state’s Department of Labor
  • Having new hires fill out their W-4s and filing Form I-9 to verify employment eligibility
  • Scheduling pay periods and coordinating tax withholding for the IRS
  • Creating a compensation plan (e.g. holidays, vacation, leave, etc.)
  • Getting someone in house or outsourcing to your handle payroll system
  • Determining what type of insurance you need (unemployment, workers’ comp, etc.)
  • Learning how to report payroll taxes on a quarterly and annual basis

Bring your business attorney and/or accountant in on this conversation. You want to make sure, even before your first hire, that you are meeting all applicable requirements.

You’re Hired!

Ok… now the fun stuff. It’s time to expand your team. As a sole proprietor, you got used to wearing a variety of hats, of being everything from receptionist to crew member to salesperson. Scaling up your small business allows you to bring people onboard who are better at their respective roles than you are! This frees you to focus on building your company.

Hire the right people:

  • Create a Solid, Specific Job Description for Each Role. Clear job descriptions align the role with your overall company vision and deliver expectations and responsibilities from the get-go. We get that your business is growing and evolving, but your team needs to hit the ground running. They need to know what to do and how they contribute to the mission.
  • Look for Someone Who Can Grow. As mentioned, you are evolving and roles can change over time. Look for folks who have the capacity to flex and grow right along with you. As needs change, be sure to update job descriptions (and compensation).
  • Hire for Company Fit. The number one factor in both job performance and satisfaction is fit. Sure, hard skills are essential, but look for employees who mesh well with your company culture. They can learn skills on the job, but you can’t teach attitude, perseverance, and other “soft” skills.
  • Compensate Competitively. You may have heard about this little labor shortage we have going on! To attract and retain the best and the brightest, you need to compensate them appropriately and competitively. Wages are one thing, but as a growing company, look at other benefits (e.g. vacation, retirement plans, HSAs, training opportunities, advancement opportunities, etc.) that can sweeten the deal.
  • Give Them the Tools They Need for the Job. Equip your people from the start. This, of course, encompasses the literal tools they need to do their jobs. But don’t forget other factors, such as support, guidance, flexibility. For example, if they need to work remotely a few days a week, build that into the role. Make sure they have what they need so they can give you what you need.

Growing Better Businesses Together

Scaling up your business from a sole proprietor into a business with employees is exciting – and nerve-wracking. Why do it alone? When you can lean on the expertise and experience of other home industry professionals, you can cut down your learning curve. At Home Artisans of Indiana, your peers have walked in your shoes; they know what you’re going through, and they have actionable insights and ideas that can help you grow your business.

To learn how to access a diverse, thriving community of home industry professionals, visit Home Artisans of Indiana today.

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