Freelancer vs. Small Business Owner: 14 Key Differences

Last Updated on February 14, 2024 by Lifevif Team and JC Franco

business owner vs freelancer
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If you had to choose between being a freelancer and being a small business owner, which would you prefer? It’s hard to answer that particular question quickly, isn’t it? It’s safe to say that both scenarios need to be scrutinized before a decision can be made. Being a freelancer comes with its advantages and disadvantages, much like being a small business owner does. The only way to determine which is right for you is to compare the two options carefully. 

Freelancer vs. Small Business Owner: 14 Differences

  1. Capital investment. 
  2. Nature of business operations.
  3. Time spent working.
  4. Stress levels.
  5. Level of responsibility to other people.
  6. Number of clients (workload).
  7. Overall expenses.
  8. Drive and motivation.
  9. How work is found. 
  10. Nature of the client base. 
  11. Use of skillset.
  12. Opportunity for growth. 
  13. Tax responsibilities.
  14. Ambitions.

Above I have listed 14 areas where freelancers and small business owners might experience differences. If you would like to learn more about each of these differences and exactly how freelancers differ from small business owners, read on. 

The 14 Differences between Being a Freelancer and a Small Business Owner

Freelancers might think that they are the same as small business owners, but the reality is that there are stark differences between being a small business owner and a freelancer. Below we take a closer look at the various areas/aspects where the two scenarios differ. 

1. Capital investment. 

Capital investment is one of the biggest worries of a first-time small business owner. Where is the money to pay for everything going to come from? There are premises to pay for, training, stock to buy, and all the legal work and paperwork that comes with owning and running a legal business. 

On the other hand, a freelancer doesn’t need to have much capital investment. Instead, it is a good idea to have some savings to fall back on, but this is not essential. A freelancer doesn’t take on the expenses of a business at all as they can work from home, already have the skills (one would assume), and the work and clients are typically looking for a freelancer with their skillset. A freelancer doesn’t have to register a business or jump through hoops.

2. Nature of business operations.

When it comes to the nature of business, a freelancer and a small business owner are quite different. Freelancers can join online freelance portals and find work fairly easily. A business owner has to go out and find customers, pay for advertising, and do a lot of leg work to keep income coming in. 

3. Time spent working.

Let’s face it, both freelancers and small business owners are known to put in extra hours, but it is an undoubted fact that a business owner will put in the most hours in comparison. Freelancers typically charge by the hour, so companies that hire them try to dictate just how many hours they are prepared to pay for. 

There’s rarely an opportunity to simply put in extra work as a freelancer, but as a small business owner, long hours and overtime are your new reality. Every minute you put into the business drives it to success. 

4. Stress levels.

It’s safe to say that a freelancer and a small business owner both deal with stress, but who has to deal with it more? Chances are that the small business owner has a lot more responsibility and worry on their shoulders than a freelancer. If you can’t handle the stress, be wary of starting up your own small business. 

5. Level of responsibility to other people.

As a small business owner, you are responsible to yourself, your family (if you have a spouse and dependents), your employees, and your customers. If something goes wrong with the business, it is the business owner who is responsible. 

As a freelancer, the responsibility that you have is greatly reduced. You won’t have employees to cater to, and if something goes wrong, there is merely a problem between you and the company that hired you for the project. At the end of the day, there is responsibility as a freelancer, but not as much as a small business owner.

6. Number of clients (workload).

The workload as a freelancer is fairly limited. You are one person, and you can only physically do so much in the hours of a day. As a small business owner, the number of clients and workload can be a great deal more as you can hire employees who can take on more work and handle more clients. There is scope for more for a small business owner. 

7. Overall expenses.

expenses
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One of the biggest differences between freelancers and small business owners is the overall expenses that they face. Small business owners will have a lot of expenses to consider each month, from premises and stock to business equipment and advertising. Freelancers might have to pay fees to be part of certain online portals, but they don’t need to pay for advertising, business equipment, and similar expenses.

8. Drive and motivation.

As a freelancer, it is safe to say that you know what your workload and earning potential limitations are. On the other hand, as a small business owner, “the sky is the limit”. You can expand and grow your business as long as you have the drive and motivation to do so. As a small business owner, you will probably be more driven and motivated to put in more time and effort. 

9. How work is found. 

How would you find the work you need as a freelancer and as a business owner? How a freelancer looks for work is quite different from how a small business owner looks for work. Advertising for a small business is often done on a larger scale, and by having a business premise, you stand to gain by foot traffic in the area. Freelancers typically rely on word of mouth and online resources to find work.

10. Nature of the client base. 

As a freelancer and a small business owner, the type of client that you make contact with will be quite different. Freelancers typically deal with business owners, and small business owners usually provide a service to the end-user. As a freelancer, the workload will probably come from the same variety of customers over the months and years. As a small business owner, the aim is to consistently grow the client base and drum up new business. 

11. Use of skillset.

This particular difference is probably one that small business owners don’t realize when they start out. Many business owners have a passion that they turn into a business, but instead of being able to focus on their passion, they have to focus on learning business skills, customer relations, advertising, and strategizing. It’s quite different for a freelancer who has a certain skillset and can put it directly to use without having to worry about the business side of things.

12. Opportunity for growth. 

How much opportunity for growth is there as a business owner or a freelancer? As already mentioned, a freelancer is fairly limited in what they can get done in a day, so there isn’t too much opportunity for growth or expansion. On the flip side, small business owners always have the opportunity to grow and expand their businesses. A small business owner can get a lot more done because of a workforce. 

13. Tax responsibilities.

Let’s talk about taxes. Tax in itself is quite a responsibility, isn’t it? As a small business owner, there’s a lot of responsibility when it comes to taxes. Business owners must pay taxes and ensure that employees’ taxes are correctly calculated and paid over. Of course, a small business owner will typically hire someone to handle this aspect for them.

tax payment
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14. Ambitions.

As a freelancer, you can be ambitious, but there are limits to what you can realistically dedicate your time to. Time is limited for a one-person team. Small business owners have the opportunity to be quite ambitious as the company can hire new staff members as the need arises. If you are a very ambitious person, you might find owning a small business to be very rewarding. 

Last Word

Hopefully, this piece has shed some light on the real differences between being a small business owner and being a freelancer. As a small business owner, there’s a lot of scope for growth and profits, and while freelancing can be lucrative, it is always limited as you can only be a “one-man” operation. Regardless of which you choose, make the best of it. Good luck!

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This article was co-authored by our team of in-house and freelance writers, and reviewed by our editors, who share their experiences and knowledge about the "Seven F's of Life".

JC Franco
Editor | + posts

JC Franco is a New York-based editor for Lifevif. He mainly focuses on content about faith, spirituality, personal growth, finance, and sports. He graduated from Mercyhurst University with a Bachelor’s degree in Business, majoring in Marketing. He is a certified tennis instructor who teaches in the New York City Metropolitan area. In terms of finance, he has passed the Level I exam of the CFA program.