Distinguishing between a freelancer vs entrepreneur can be tricky. On the surface, they are actually quite similar. In many countries, there is actually no legal business distinction. However, we can identify a handful of key differences, which we will discuss below. These distinguishing factors are important to note when you want to go more than just skin deep.
What is a Freelancer?
The most basic definition of a freelancer is a person who earns money on an independent basis. They go from one job to the next, or handle several at once. This is unlike employees who usually have a single job that they do full time. Freelancers who do short-term work will usually have different jobs lined up. Or, they will look for a new job once they finish the old one. Freelancers who do part-time work will usually have several clients on their roster.
A freelancer is also commonly called an independent contractor. This means a person who does work independently from a specific company. This person would also work on a contractual basis, not a regular basis. Again, this is in contrast to an employee, who would be legally bound to a single company. Because of this, freelancers do not receive the same benefits that employees do. Common benefits include such as paid vacation time, sick leave, medical or dental insurance, and the like.
A freelancer might also be called a gig worker. We generally define gig workers as those individuals who don’t work on jobs long term. So, a freelancer might actually work with a client for several years, even. Still, they will not be an employee. But a gig worker is a freelancer who does short-term projects exclusively. This means that they usually have the characteristic of not developing long-term relationships with clients.
We want to note that the above is a misconception for the most part. Some clients go back to the same freelancers time and again for repeat jobs. For example, let’s say you need website maintenance or database updates done. These are considered gigs. You don’t hire someone to do that on a daily basis or even once a week. You would call a gig worker to come in from time to time as needed to keep things running. Even if they only spend a few hours at a time working with you, you can still develop a relationship with them.
That said, some gig workers have regular employment. This is important to note if it affects your decision in any way. This would be technically called an alternative or non-standard work arrangement. Some clients prefer this because it does not require any commitment. Others prefer not to hire freelancers with day jobs because they may not be prioritized.
Pros and Cons of Being a Freelancer
The biggest pros of being a freelancer vs entrepreneur would be relative security without all the pressure. Freelancers can earn more that regular employees. They can also do this while enjoying more control over their financial situation. At the same time, they can still depend on clients to give them work to do. Entrepreneurs must drum up the business that creates the work to be done. This is a huge load off a person’s shoulders, especially when they’re not really visionary types.
The biggest cons if freelancing rather than building a business are the limits. Primarily, their freedom and growth potential are limited. Freelancers are still bound to clients in terms of things like scheduling. They are also limited by the number of hours that they are able to work. Even if they might be able to raise their rates, they will still never be able to work more than a certain number of hours. This puts a cap on their earning potential as individuals.
Key Skills Required for Freelancing Success
We have identified several technical skills that are in high demand. Freelancers who learn these skills can increase their marketability and charge higher rates. Freelancers are in demand in any case because of the growing outsourcing trends. However, the number of freelancers hunting for work has never been higher. Since the pandemic hit, working from home has become more the norm than working in an office. This means that the competition is getting tougher. Having the following skills can tip the scales back in any freelancer’s favor.
A good freelancer must be an expert communicator. At least, in terms of being understood and making sure a client’s instructions are understood. Communication is a key skill from start to finish. This means being clear on everything from the project scope and payment terms all the way to the finished product.
Good communication also includes a system for keeping clients updated on a regular basis. Even if a client doesn’t ask for updates, the best freelancers will still drop them a line or two. This is a best practice that keeps clients at ease. More than updates, clients also appreciate intelligent suggestions. A good communicator will know how to present ideas for improvements that can be made in a way that helps then be accepted by everyone involved. This makes the work and the environment better for them and everyone else.
The highest level of communication that can up any freelancer’s game is negotiating tactics. Freelancers need to stay on top of this because they don’t usually have long-term contracts. They also don’t usually get regular raises like salaried employees do. This means that freelancers need to be keen on getting the best deals. Good negotiation skills also help to ensure that freelancers and clients are on the same page in terms of expectations. This helps everyone avoid misunderstandings and generally stay happy with the work arrangement.
A freelancer needs to know more than how to do a niche job. To get a leg over the competition, they must know the ins and outs of the industry they work in. Most businesses expect freelancers to be able to work independently. If they want to impress clients, freelancers need to show them that they don’t need a lot of guidance. They therefore work to gain a deeper understanding of how things work. This will also naturally increase their confidence level. In turn, this makes a freelancer’s expertise more obvious to clients.
Creative freelancers impress clients more than the average worker. Being creative is a higher-level skill, and it’s really valuable when correctly applied. A creative freelancer can, for instance, develop custom solutions to problems or enhance project outcomes. Going above and beyond a client’s expectations is always appreciated. That is, as long as it doesn’t go outside the discussed requirements!
Because freelancers work independently and on several projects at once, project management is essential. This includes time management, too. The freelancers who get hired back and get recommendations to other clients have two main characteristics. First, they complete projects according to the scope agreed. Second, they meet deadlines, which means staying withing budget, too, when they’re doing hourly projects.
The best freelancers know how to not just get organized, but stay organized throughout a project. They also stay organized from one project to the next and the next. They are also proactive decision-makers and goal-oriented planners. This means that they can easily prioritize projects to keep all their clients happy without ever sacrificing quality.
What is an Entrepreneur?
The most basic definition of an entrepreneur is someone who owns their own business. An entrepreneur will commonly organize and operate that business, too. Of course, some entrepreneurs own more than one business. In these cases, they are more likely to hire other people to do the organizational and operational work involved. This means that they would basically buy businesses run by other people. Although this may sound a lot easier than being a freelancer, it does require additional skills.
Generally, an entrepreneur must have greater foresight in the area of business. Entrepreneurs do not simply sell their skills and time like freelancers do. They build businesses, taking all the financial risks on their shoulders.
Pros and Cons of Being an Entrepreneur
The greatest pros of being an entrepreneur are unlimited potential and freedom. This is, not ironically, the opposite of freelancers. Freelancers are almost entrepreneurs, after all. They just need to take that step from working on someone else’s business to working on their own.
The greatest con of being an entrepreneur is taking on the greatest risk. An entrepreneur is responsible for everything that happens within the business. Some can argue that it’s the same for a freelancer because they have to find their own clients and keep them happy. In some ways, this is true. However, the difference is that entrepreneurs must keep the business afloat or risk bankruptcy. Freelancers can move to a different business with minimal losses.
Key Skills Required for Entrepreneurial Success
The top skills every entrepreneur needs fall into two categories.
Entrepreneurs need business management skills to create plans that work, then properly organize and direct the organization. Without these skills, an entrepreneur will find it difficult to achieve credibility, efficiency, and create a company culture that fosters productivity and growth.
Good entrepreneurs are good leaders. They are not just positional leaders, but lead by example. They know how to get people to follow them without using scare tactics. Entrepreneurs also need strategic thinking and planning skills to analyze information and make the right changes. This includes solving problems that come up. This way, the business can overcome challenges and properly manage resources to meet its goals.
Critical and Creative Thinking
Entrepreneurs take creativity to another level. With strong critical and creative thinking skills, an entrepreneur can build a string business, then expand it. The most successful entrepreneurs use critical thinking to make keen analyses that guide profitable decisions and create the most effective solutions to problems. They use creative thinking in these processes to produce better results by taking in various perspectives and generating original ideas.
Transitioning from Freelancing to Entrepreneurship (and vice versa)
The best freelancers tend to be the most flexible. Doing gig work and jumping between clients makes this a necessary skill for freelancing. Because of this, freelancers will also make more of an effort to specialize in more than one area or work. This is in comparison to workers who tend to prefer regular employment offers. This ability to be a jack of all trades almost also makes freelancers more desirable hires. That is, generally speaking, and in comparison to the average employee.
This flexibility is what makes it much easier for freelancers to transition into entrepreneurship. It’s not that big of a step up, after all. That said, we see a couple of major areas to look into before making the transition between freelancing and entrepreneurship:
First, a freelancer must know what starting and running a business entails, and be determined to see it through. Jumping from one project to the next is easy. Even transitioning between clients is not that hard. Starting a business is a much larger and more serious commitment.
Second, a freelancer must have enough capital to set up their desired business. If they require funding, they must have a plan for either paying back loans or paying investors. They also need a contingency plan in case the business fails. Aside from funding, they must have enough money to live on until the business starts making a profit.
Tax obligations for freelancers and entrepreneurs
Generally speaking, most governments consider freelancers to be self-employed. The tax status or legal classification would be an independent contractor. This is in contrast to an employee. This is the same as having a sole proprietorship. That means you are an individual who owns a business. In these terms, for example, a freelancer would have the same tax status as a dentist.
A freelancer can also transition from being a sole proprietor to an LLC, if that works better. For starters, though, a sole proprietorship is most likely going to be the best option.
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The differences of a freelancer vs entrepreneur are not always so clear-cut. You might say, to keep it simple, that an entrepreneur is like a top-tier freelancer. As long as you make it clear that you are not simply trading time for money, you won’t be too far off the mark.