Financial and Tax Challenges for the Self-Employed
There are many different types of business ventures run by self-employed individuals. Self-employed individuals or entrepreneurs have a gamut of different opportunities in the business environment to run a business. The self-employed can choose from the franchising world, work as an independent contractor, or work in the gig economy spectrum. Everyone working as a self-employed individual within each of these different areas will need to overcome the financial and tax challenges. Be optimistic in your approach to overcome these challenges.
Franchising opportunity. A franchise contract is a legal document between the franchisor (parent company) and the franchisee (business owner) to join the organization to promote and sell the franchisor products and services. The franchisor agrees to allow the franchisee to use the name, logo, products, brand, and services by using the methods of the franchisor’s business model. The franchisee agrees to pay the franchisor certain fees, which include the initial franchise fee, royalty fees, and marketing fees, while following the rules of the franchisor business model.
Both the franchisor and the franchisee have certain obligations to follow in the relationship. These obligations are dictated and detailed in the franchise agreement. The rules outlined in the franchise disclosure document (FDD) are necessary to help maintain consistency, uniformity, and quality levels throughout the network.
Gig Economy Workers Independent contractors, diversified workers, moonlighters, freelancers, and temporary workers are all groups that make up the gig economy. The gig economy is a sector of the workforce in which people have short-term employment. Those in the gig economy are contingent workers, freelancers, consultants, tradespeople, who cannot necessarily count on their next gig. As a result, gig workers, as independent contractors, do not receive benefits. The gig worker might lose benefits like health insurance, life insurance, vacation pay, workers’ compensation, and retirement benefits from the employer. Rather, they must procure these benefits on their own. This might cause a financial challenge for the gig workers! Our economy is witnessing a dramatic increase in the number of independent contractors, freelancers, and temporary workers seeking to escape the rigid demands of the normal corporate environment.
Shifted Responsibilities in the Gig Economy These individuals face important financial and tax challenges. Because income from freelancing, consulting, or other contingent work is not necessarily steady, it is vital for a gig worker to be proactive in managing money. This includes establishing a savings program to create a financial cushion when things are slow. It also requires careful budgeting so that funds are not spent in an uncontrolled manner when they come in but are instead applied for various necessary day-to-day purposes.
Other Small Business Owners In several cases when individuals start a business, it might fall into one of many different categories. They might decide to open a franchise operation. They might want to become an independent contractor and work in the gig economy. Or it might mean that it will fall into an “other” category. The category that is not franchising or in the gig economy. That does not mean that the rules are different for each of the categories. It just means that there are many different options and opportunities for starting a business.
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