YRITTÄJÄ, tule mukaan omiesi pariin! Liity Yrittäjiin.
What is entrepreneurship?
Thinking about what entrepreneurship is all about and what it demands of you? Interested in starting your own business? Do you have a business idea you’re dying to try out? Do you have a product or service you want to sell to others? Are you tempted by entrepreneurship and the freedom of working for yourself?
If you answered yes, you’ve already taken a big step on the path to starting your own business. As a business owner, you can bring your own vision to life as you work for yourself. You can decide on what you do and the size and direction of your whole business.
Entrepreneurship is a way to work and earn a living. With a company of your own, you can employ yourself and possibly others too.
As a business owner, you have both more responsibility and more freedom than when working for someone else. Your social security is arranged differently to an employee’s, and you are personally responsible for things like entrepreneur pension contributions.
Many people reply to the question of what entrepreneurship is by saying it is a way of life. At the very least, it is a unique way of working and implementing your ideas — of holding the reins of your life in your hands.
What does entrepreneurship demand?
An entrepreneur has to have a feasible business idea. To succeed as an entrepreneur, you have to produce something that other people want and need: a product or service.
There is a short and concise answer to the question of what entrepreneurship demands: commitment. It is an all-encompassing way of earning a living. You may not be able to step back from your work as easily as an employee can. You are always the owner of your business, both on and off the clock.
You also need courage and grit. Success rarely comes easily: there is no point in expecting quick gains. To start your own business, you need to be resilient. You have to be able to withstand pressure and tolerate uncertainty, as your business is sure to see both easier and harder times.
You are your business’s most important capital: its operations depend on your business idea. When you start operating, you will have to test your idea out many times. Is it sustainable? Is there demand for your product or service? Can you live with occasional uncertainty and stress about how your company is doing?
You are also your own employer: you pay yourself a salary and are generally responsible for your company’s finances. There’s no longer a regular salary being paid into your bank account; you produce all the financial success your business can achieve.
If you employ people, you are also responsible for their jobs. You all work together for a common goal.
Entrepreneurship requires passion and enthusiasm, but it also gives you unique experiences of success when your business idea takes off and grows. Take the plunge!
Entrepreneur or employee?
When you go from being an employee to running your own business, a lot of things change. For example, you are in charge of how much you earn and of making your own pension contributions. Here are the most important changes.
1. An entrepreneur’s wages, holiday pay and overtime
As an employee, you are regularly paid a net salary from which tax and other mandatory payments have already been deducted. As an entrepreneur, you pay yourself as much salary as you decide and as your business’s finances allow. In addition, your business can reimburse expenses and pay dividends to its owners.
When you pay yourself and any employees salary as an entrepreneur, you must meet your obligations as an employer. The following are withheld from both the business owner’s and employees’ gross salary:
- income tax per tax card
- Employer’s sickness insurance contribution
If your business employs people, you also pay
- contribution to employees’ accident insurance
- occupational pension contribution (TyEL; the employee’s share of this is withheld from his or her salary)
- unemployment insurance contribution (the employee’s share of this is withheld from his or her salary)
Employers are also responsible for reporting the salaries and employer contributions they pay to the Incomes Register within five days of paying the salary.
If you are a sole trader, you do not pay yourself a salary; you make private withdrawals from your business’s bank account. As a sole trader, your business activity is taxed as part of your personal taxation. You pay advance tax on your business’s profits in accordance with your profit estimate.
Unless you are skilled at accounting, it is worth finding a competent accounting firm or accountant who can also calculate payroll and mandatory contributions on your behalf.
2. An entrepreneur’s pension insurance
An employee’s pension contributions are the responsibility of his or her employer: they are deducted directly from salary and paid to a pension fund. As an entrepreneur, you must manage your pension security personally and take out an entrepreneur’s pension insurance policy (YEL) if you meet the requirements for mandatory participation.
YEL insurance guarantees you an income later in life or if you are incapacitated for work. It also determines the level of your family’s survivor’s pension. It is worth noting that allowances paid by Kela are also determined according to your YEL contributions. So it’s not just your pension that’s in question — the level of illness and parental allowance is also affected.
By law, you must take out entrepreneur’s pension insurance (YEL) if
- you are aged between 18 and 67
- you work as an entrepreneur for at least four consecutive months
- The value of your work contribution to your business (known as your “YEL work income”) is at least €8575,45 (as of 2023) and you live in Finland.
You must personally take out a pension insurance policy with a pension fund. The following occupational pension insurers provide YEL policies: Elo, Ilmarinen, Varma and Veritas.
Your YEL contributions are determined in accordance with your work income (as defined above). The size of your contributions is determined by your age, the number of months a year you pay, and the discount for new entrepreneurs, if you are eligible.
You can offset your YEL contributions against taxation or your spouse’s taxation. Your business can also pay your contributions.
3. An entrepreneur’s other liabilities
As an entrepreneur, you are personally responsible for your insurance coverage. Some types of insurance are mandatory, and some are voluntary.
In addition to YEL, there are mandatory forms of insurance in many sectors:
- Patient insurance is mandatory for entrepreneurs in the health care and nursing sectors, such as masseurs and physiotherapists.
- If the sector carries a risk of environment damage, environmental impairment liability insurance is also mandatory.
- Third-party car insurance is also mandatory if your business has vehicles.
- If you employ people, you must contribute to your employees’ statutory insurance. For example, employment pension insurance, occupational accident and occupational disease insurance are mandatory.
Depending on the nature of your business and your work, you may need a wide variety of insurance policies to secure your business’s property and keep it operating. You should at least think about taking out liability insurance and legal expenses coverage. You might also have reason to take out occupational accident insurance, especially if you are in a sector with a high accident risk.
These insurance policies are voluntary, but they can be a very important way of mitigating risk. When you start your business, you will get offers from several insurers. You should think carefully about your business’s risks, ask for quotes and compare them.
4. An entrepreneur’s insurance in case of illness and work incapacity
As an employee, you receive pay or Kela sickness allowance when you are sick and unable to work. As an entrepreneur, you are also entitled to sickness allowance paid by Kela, called YEL sickness allowance. It is paid for nine days in accordance with your YEL work income. After nine days, you can get basic sickness allowance if you need it.
You must show your incapacity for work with a nurse’s note, either from a public health centre or a hospital. The qualifying period when you have a YEL policy is one working day.
5. An entrepreneur’s unemployment security.
When you run our own business, you are entitled to earnings-linked unemployment benefit if you are a member of the Yrittäjäkassa entrepreneurs’ unemployment fund. You must have been a member for at least 15 months to claim unemployment benefit. To receive unemployment benefit, your business must have stopped trading completely or you must be no longer employed by the business at all. As long as you are a full-time entrepreneur, you cannot receive unemployment benefit. To receive unemployment allowance, you need to register as a jobseeker with a TE office, who will investigate whether your business has ceased trading.
If you are not a member of the entrepreneurs’ unemployment fund, you can still receive basic unemployment allowance or labour market subsidy from Kela.
If you are a part-time entrepreneur, your unemployment status is more open to interpretation: if you apply for unemployment benefit, you must submit a clarification of the matter to a TE office. They will inspect whether your business activities are an obstacle to accepting a full-time job. If you run a business on a small scale or for a short time, you may be eligible for adjusted unemployment allowance.
You can also establish a business while still unemployed and receive unemployment benefit in the initial period. More detailed information about starting a business while unemployed in available on the TE centres’ website.
6. Equipment
As an entrepreneur you acquire your equipment yourself. They are part of the expenses you must consider in your income statement. Some expenses can be offset against tax.
7. An entrepreneur’s occupational healthcare
When you run your own business, it’s important to look after your health, and it can even be worthwhile for single-person businesses to sign an occupational healthcare contract. Both public health centres and private clinics offer occupational healthcare services. Kela covers some of the costs you pay as an entrepreneur who concludes an occupational healthcare contract. In addition, you can offset reasonable occupational healthcare expenses against your business’s taxation. If you have employees, you must at least arrange preventive occupational healthcare for employees on employment contracts. If you wish, you can also offer your employees more extensive occupational healthcare services than this.
Different ways to run your business
Running your own business — why not? You can start running your own business whenever you want if you have a business idea, desire and courage. What way of running your own business suits your situation best?
Entrepreneurship has many faces: one person is happy to spend her whole career as a single-person business, while another wants to be a growth-oriented start-up entrepreneur from the beginning. A third person could be on part-time pension and at the same time run a business. A fourth sets up a side-line business while on maternity leave, and a fifth is a serial entrepreneur who registers, buys and sells companies. The possibilities are endless! Here are some perspectives which could help you as you consider the options.
Full-time entrepreneur
You are a full-time entrepreneur if your work on behalf of your business takes up so much of your working time that you could not accept a full-time job from someone else. Your work input is your business’s most important resource, and you spend your time and energy for the good of your business. As the business owner, you pay yourself compensation for your work (depending on the business entity it is either salary, dividends or private withdrawals), within the limits permitted by your business’s financial situation, naturally.
Many business entities suit full-time entrepreneurship. You should choose a business entity carefully. For example, does being a sole trader or running a limited company suit you better? They are the two most common business entities in Finland.
Part-time entrepreneur
A part-time entrepreneur spends most of his or her working time on something else than running a business, such as studying. Suitable ways of including part-time entrepreneurship might be registering as a sole trader or using an invoicing service. This way is easy to run with low overheads. On the other hand, all business entities are possible.
You can also earn part-time as a freelancer. It is important to remember that freelancers are often considered entrepreneurs, because they have several clients and invoice for their services. Sometimes a freelancer can be classified as a salaried employee if he or she works on an employment contract. Deciding when a freelancer is which can sometimes be difficult, and you should check with the Tax Authority, TE Services and other authorities for their interpretation in your case to avoid difficulties with things like unemployment security.
The business entity that suits you best depends on the nature of your work, your situation and your needs. In some sectors, gigs or freelancing are major ways of earning a living. You can do them either full or part-time.
Whether you are a full or part-time entrepreneur is significant if you apply for unemployment benefit: as a full-time entrepreneur you are not entitled to unemployment benefit, but as a part-time one you could be.
Running a business at various life stages
You can start your own business at many life stages and in many situations. Everyone has the freedom to run a business! Here are some tips if you are thinking about whether entrepreneurship suits your situation. If you are thinking of doing it part-time, in particular, you may have to think about combining your own business with other income or benefits.
You can start your own business even if you are not yet 18: you can even register as a sole trader as a minor. However, if you are under 18, you need a parent’s or guardian’s consent and signature on the business registration form you submit to the Trade Register.
On certain conditions, a minor can also be a shareholder in a limited company. He or she can subscribe shares and sign a memorandum of association by paying the issue price with his or her own earnings. A minor can also be a shareholder with shares received as a gift, on certain conditions.
If you are aged 13–28, you can set up a 4H business, for example for a summer. You join the 4H organization and get a wide range of support and help for your part-time business.
If you are an adult student, you could be a part-time entrepreneur while still studying. You can freely choose your business entity. The business entity you choose depends on the extent of your business and the number of business partners you have. For example, if you have a low volume of sales in the beginning, light entrepreneurship or sole trading could suit you.
Read more: Light entrepreneurship
If it is clear from the start that your operations are going to expand and need things like external finance, it might be best to register a limited company. If you are registering a company with some fellow students, for example, other options might be partnerships or limited partnerships.
Your income affects your student grant, whether you run your own business or earn wages. If your income exceeds the annual limit for your student grant, you will have to pay your grant back.
The work income you declare for entrepreneur pension (YEL) purposes is considered when you are awarded housing allowance. The Kela website has more information about the effect of income on student grants.
Parental allowance is determined in accordance with annual income. The annual income is calculated according to the income you received during the 12 calendar months preceding the start of the right to the allowance. In the case of an entrepreneur’s annual income, the work income for YEL purposes during the preceding 12 calendar months is considered. Salaries from the entrepreneur’s own company and earnings from business activities are not included in this calculation of annual income.
If you are a part-time entrepreneur and at the same time work for someone else, both your YEL work income and your wage income will be considered when calculating your annual income.
Even if you are already of pensionable age, you can continue to work in accordance with your own schedules, energy and needs. After a long career, you can take advantage of your skills as a part-time entrepreneur.
You don’t need to start your own business alone. The secret of success is often a brilliant team that combines its forces and skills to achieve a common goal.
You can find business partners in your own sector or in completely different ones. It’s important to think carefully about who you start a business with: do you share the same goals and values? Will you cooperate well? Will you complement each other, both in terms of personalities and skills?
When you agree to start a business, you should think from the start about precise agreements, regardless of business entity: limited company or partnership (partnership or limited partnership).
You can also establish a cooperative with like-minded people, or join an existing one. A cooperative is yet another way to sell your own products or services. This business entity is an old but feasible way of running a business.
Cooperatives exist so their members can take advantage of all the services offered by the cooperative, such as invoicing. A typical example of a cooperative is one founded by craftspeople.
There are several options when it comes to business entities, so the lack of choice, at least, is not an obstacle to entrepreneurship. If you want to try out running a business by yourself in an easy way, you can consider light entrepreneurship or sole trading.
Light entrepreneurship means that you sell your own skills like an entrepreneur, but an invoicing service looks after things like invoicing, accounting and payroll for you. Light entrepreneurship also goes by the name of invoicing entrepreneurship.
Read more: Light entrepreneurship
Someone running his or her business without anyone else is often called a sole trader. Sole trading is often the choice for single person businesses, because it is easy to register and has lighter regulation than a limited company, for example. You can operate as a sole trader either full or part-time.
If you are skilled in your field and want to work for your own business, it’s easy to become a sole trader. This business entity suits you best if you plan on selling your own skills and only employing yourself.
You don’t always have to create business activities from scratch or based on an idea of your own. You can buy an existing, functioning business or become an entrepreneur as a member of a well-known chain and existing business idea. Such chain businesses are known as franchises. The franchisees run each unit as a business in accordance with the chain’s concept.
Franchising is common in many sectors, such as cafés, restaurants and property.
Light entrepreneurship
Are you interested in light entrepreneurship? It could suit you if you want to sell your skills as services and thus try out running your own business on a small scale.
“Light” entrepreneurship is a constantly growing form of entrepreneurship. Its other name, “invoicing entrepreneurship”, describes its essential trait well: an invoicing company that invoices your clients for the services you have sold plays an essential role. Neither term is official, even though they are used in marketing and everyday speech.
Light entrepreneurship is often the start of an entrepreneur’s journey. It is an easy way to try out how successful an entrepreneur you are or how to sell your skills on a small scale. With light entrepreneurship, you can avoid things like large start-up costs.
Light entrepreneurship could be for you if you are selling services — when you want to use your skills and sell your services to others. An example of typical light entrepreneurs is professionals in the cultural sector.
Light entrepreneurship is not suitable for sectors subject to permit, such as healthcare, electrical installation or property. The business owner applies for the permits for business of this kind, and that cannot be outsourced to an invoicing company.
The difference between the work of an entrepreneur and an employee can raise questions. For example, one crucial issue is who manages and supervises the work: an employee’s work is supervised by an employer, whereas an entrepreneur delivers the final product to a client. An employer is generally responsible to a large extent for the employees’ social security, liabilities, insurance and tools, whereas an entrepreneur is independently responsible for them.
A light entrepreneur is an entrepreneur who does not necessarily own a business or have a business ID. This entrepreneur invoices for his or her services via another company, one offering invoicing services, and often using its business ID. However, some invoicing services provide their customers with a business ID, making the entrepreneur practically a sole trader. Even without a business ID, the light entrepreneur operates as an entrepreneur, selling his or her skills and work as services and invoicing for them. “Light entrepreneurship” is still quite a new term, and its meaning is interpreted in slightly different ways in different situations.
Like other entrepreneurs, light entrepreneurs must pay contributions to their entrepreneur pensions (YEL) if the value of their work input exceeds the confirmed limit and the business activities last longer than four months. This is regardless of whether the entrepreneur has a business ID.
Under employment and social insurance legislation, too, a light entrepreneur may be treated as an entrepreneur, which could affect the light entrepreneur’s unemployment security. You should check these issues with the employment authorities in detail.
A contract with an invoicing company affects your taxation and things such as travel expenses and other tax credits available to you.
If you are a light entrepreneur, the invoicing company takes care of your tax and other statutory obligations and transfers you the client’s payment for your work either as salary or trade income. The invoicing company sends invoices on your behalf and, depending on the contract, can also pay mandatory employer’s contributions and tax.
If you become a light entrepreneur, you can sign one of the following types of contract with an invoicing company:
- Formal employment contract: in this case you are an employee for taxation purposes and are paid salary
or
- Invoicing contract: in this case you are a person performing income-generating activities (without a business ID) or an entrepreneur (with a business ID) and you or your business receive trade income.
The difference is important and substantial, as the form of light entrepreneurship is directly linked to things like taxation and claiming back costs. The way that suits you depends on your situation, your preferences and your business activities.
An invoicing company can also take care of insurance and YEL payments — tasks that are usually entrepreneurs’ responsibilities. The company naturally charges the light entrepreneur for this, as the light entrepreneur is outsourcing his or her financial administration to another company.
An entrepreneur without a business ID does not keep his or her own accounts; the invoicing company’s accounting takes this entrepreneur’s business operations into account.
From the unemployment security perspective, a light entrepreneur may be classified as an entrepreneur. What is decisive here is not whether the entrepreneur has a business ID, for example, but the nature of the work: entrepreneurship consists of doing work independently.
If you operate as an entrepreneur while receiving unemployment benefit, the TE office will evaluate whether it is a primary or secondary occupation. The amount you earn affects the level of your unemployment benefit. A part-time entrepreneur may receive adjusted unemployment benefit.
As a light entrepreneur, your income and invoiced working hours, recorded in invoicing, are generally clearly visible in the invoicing company’s accounting. This makes evaluating whether your entrepreneurship is a primary or secondary occupation. It is not always so easy for other entrepreneurs to prove how much they work.
You should read the employment authorities’ rules to avoid misunderstandings. You can get more basic information on the TE Services’ website.
Read more: Entrepreneurs’ social security
Initial funding is support intended for new, full-time entrepreneurs. A light entrepreneur can also apply for initial funding, but a condition for receiving it is a business ID. To receive initial funding, you must apply before starting trading. If your business is more of part time, you can get initial funding later on when it becomes full-time. However, if you want initial funding you must apply for it before you take this step, and you must get a business ID.
Can a light entrepreneur join Suomen Yrittäjät?
Light entrepreneurs can join Suomen Yrittäjät and enjoy the same benefits as other entrepreneurs.
Light entrepreneurship — advantages and disadvantages
Advantages:
- An easy, flexible way to sell your own skills and test out a business idea.
- Also suitable for a part-time business.
- No start-up costs; you just pay for using the service.
- A light entrepreneur without a business ID does not need to keep accounts.
- Low risks, as the invoicing company takes care of the details of accounts and taxation.
Disadvantages
- The invoicing company charges a share of your rates.
- Not suitable for operating in sectors which require permits.
- A light entrepreneur operating without a business ID cannot receive initial funding.
- A contract with an invoicing company affects your taxation and things such as travel expenses and other tax credits available to you. Unemployment security issues are also not simple. You should study these carefully with your own situation mind.
