Owner-Operator

An owner-operator is a business owner who also manages the daily operating activities of the business.

While this is a broad definition that can be applied to all types of small businesses, the term is usually used for businesses where the owner plays a key role in delivering the service that is being provided by the company.

For example, truckers are almost synonymous with the owner-operator label because they are self-employed, own or rent their own trucks, and personally drive the vehicle to the desired destination.

The number of owner-operators are on a steep rise partly due to the emergence of the gig economy.

Some of the common owner-operators we can see these days are:

  • Ride-sharing drivers
  • Long distance drivers
  • Web and app designers
  • Entertainers
  • Online retailers
  • Retail booths
  • etc

It must be said that as business grows, owners tend to move to a more management-focused position and hire employees who deliver the services instead.

Even though this still technically make them owner-operators since they are still involved in operating activities, they are not categorized as such in practice.

Advantages of owner-operator

The biggest advantage of being an owner-operator, as many would agree with, is that the individual would have control of his or her own destiny.

Effort and income

This means that their personal income is not limited to the employment contract that they would be compensated by when being the employee of a company.

But while it is generally agreed that the more time they put into the business, the more money they make, this assumption does not take into account how high a demand there is for what they sell and whether they can effectively reach that demand.

For example, the need for web designers is very high across all types of industries. But whether a web design business owner would be able to secure enough clients to serve every day depends on how well he markets his services to the target market.

So it would matter little if the business owner is willing to put in 18-hour days but don’t have enough clients to use that time for.

In addition, for a lot of types of self-employment, there is a limit to how much income one can generate as there is only 24-hours a day. Even if an owner-operator does not sleep and works 24 hours, there is a ceiling to personal income as the business would find it a huge challenge to scale.

Some types of self-employment with these types of limitations are:

  • Plumbers
  • Handymen
  • Computer repair
  • etc

Flexible time management

Another advantage that is often advertised is that owner-operators often have control over the time they spend delivering services to earn money.

For example, this can often be observed from the marketing collateral used by ride-sharing companies such as Uber and Grab when conducting driver recruitment drives.

Drivers can decide for themselves what time to work, what time to end work, or even whether to work at all and take the day off!

This type of time flexibility can be a huge draw for those with other personal commitments to attend to such as having to care for their kids during specific hours.

The drawback of course, is that with every minute that is not spent working, owner-operators are incurring opportunity costs that could be earned if they had spent the time working instead.

Instant payment

One of the big advantages of working for yourself as an owner-operator is that you can often receive payments for the services you provide instantly after providing the service.

This can be a very useful feature when cash flow is desired.

This does not mean that all payment collections are immediate for every transaction. But a lot of transactions are going to occur in cash which can be used immediately for other purposes.

There is no need to wait for a monthly salary payment like when being employed by a company.

Disadvantages of owner-operator

A lot of people can be attracted to the major benefits of being an owner-operator. But it come with various drawbacks as well.

Personally responsible for success

Working hours would no longer be scheduled from 9-to-5.

One has to be ready to work at any time to maximize personal income. Sometimes it could even be required just to maintain an income comparable to being employed.

This can lead to various personal sacrifices that are necessary.

For example, going on holiday might not be a choice anymore due to the direct loss of income. Indulging in luxury goods might also have to take a step back for a while.

So if you are not ready to make personal sacrifices it’s probably not a good idea to be self-employed.

Business costs

It takes a certain amount of capital to start a business.

While there are various types of services that people can offer to others with very low capital requirement, these are also the industries that one can expect to face a huge amount of competition from other owner-operators.

That is assuming one has the required skills to offer such services in the first place.

The amount of revenue one generates would also have to be offset by expenses.

So for every $100 earned, expenses has to be deducted before you can book that in as profits or personal income.

Obtaining credit

This is something that is not often talked about by business owners.

People who are self-employed are not viewed fairly by lenders in terms of personal income compared to those who are employed.

This is because there is a perceived risk of unstable income.

The implications of this is that when an owner-operator applies for a credit facility such as a home loan, the personal income of the applicant can be discounted during credit assessment and working out debt ratios.

This means that qualifying income would be less than what is actually made by the applicant when he or she is an owner-operator.

This can be the case even when the business owner is listed as a salaried employee of his own company.

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