Starting out as a sole trader in Germany with 9 simple steps

Going into business for yourself is something anyone can essentially do. Even without a groundbreaking idea or startup funds, countless opportunities await. Unfortunately, there's no ultimate blueprint for a successful launch.

In this article, we'll show you how to become a sole trader in Germany with nine easy steps, what costs to expect, and what prerequisites you should have.

Self-employment means that a person performs their professional activity independently (of an employer) and acts on their own responsibility.

The self employed provide services independently and are not bound by instructions, working on behalf of their clients. They enjoy the freedom to decide when, where, and how to carry out their tasks, while bearing the entrepreneurial risk alone - they're liable in the event of damage.

Taking the plunge into self-employment isn't just about courage; it's about knowledge and preparation. For your endeavor to succeed, you'll need to meet certain criteria and considerations.

These requirements can be divided into three categories:

• Professional prerequisites
• Personal prerequisites
• Legal prerequisites

Basically, anyone can fulfill the dream of owning their own business. There are some professional requirements you should meet for self-employment:

• Professional qualifications: To become self-employed, you should have skills related to your business idea. In fields like healthcare, law, or education, and especially in trades, you may need to demonstrate these with relevant qualifications.

• Commercial and business management expertise: As a self-employed person, you are responsible for purchasing, pricing, accounting, and taxes. Therefore, basic knowledge in these areas is essential. You can expand or refresh these skills in specialized seminars or workshops.

• Language skills: For starting a business in Germany, German language skills are often indispensable, as many official documents are only available in German, and communication with customers and business partners usually takes place in German.

In addition to professional requirements, you should also possess certain personal qualities and skills to be successful as an entrepreneur:

• Personal suitability: Ask yourself if you are ready to be the captain of your own ship. It might be helpful to take an online test or seek advice from experts.

• Ambition, commitment, and willingness to take risks: These are essential to building a company from the ground up and navigating through highs and lows.

• Resilience: Even with a great business idea and solid funding, not everything will go as planned. You should be able to withstand pressure and challenges.

• Legal age: You must be at least 18 years old.

• No professional ban: You must not have been prohibited from practicing the profession in which you wish to become self-employed.

• Registration of activity: Before starting your self-employment, you must complete your Gewerbeanmeldung (business registration) at the local Gewerbeamt (trade office).
• The registration fee varies by municipality (€10-€60), with Berlin charging €15 and Munich €50

• Business account: Required for some business entities, as it helps keep your finances in check. An account with integrated accounting and a link to your tax advisor can particularly help with bookkeeping.

• European certificate of conduct (for EU citizens): In some professions, proof is required that you have no criminal record.

Starting your own business requires courage, determination, and a lot of preparation. But how exactly do you begin? What steps are necessary to turn your vision into reality?

Below, we guide you through the nine fundamental steps to consider on your path to self-employment. Each step helps refine your business model, minimize risks, and prepare for successful entrepreneurship.

1. Find a business idea
2. Create a business plan
3. Secure financing
4. Choose a legal structure
5. Pick a company name
6. Open a business account
7. Register a business
8. Apply for a tax number
9. Review insurance options

Finding a compelling business idea is a challenge. It should:

• be innovative,
• solve a problem, and
• offer value to customers.

Meanwhile in Germany, conscious consumption is becoming increasingly important: consumers expect a responsible use of resources. A new company's offering should be ethically sound so that customers feel socially and environmentally conscious.

Data protection and data security are also essential in your self-employment.

The requirements are cut-throat: it's not enough to be motivated and inspired - you must be able to implement your business idea and there should be a market for it.

If you offer products and services that provide both social and ecological value, your chances of success are good. Ensure that your product fits the market - consider the product-market fit.

Whether you want to finance your self-employment journey with your own or external funds, you should create a well-thought-out business plan. The more carefully you plan, the more solid the foundation for successfully implementing your project.

A sound business plan should include the following components:

• Financial plan: How and for what will you use your capital?
• Financing plan: Where will you get existing and future capital from?
• Market analysis: Which business location is suitable? How willing are customers to buy?
• Competitive analysis: How high is the competition in your chosen market?

The financial plan is a central element of your business plan, especially if you need external financing. It shows whether starting the company is worthwhile and what capital is needed for self-employment. It helps assess whether you can repay loans and allows you to identify financial risks early.

With a well-thought-out business plan, you'll seek investors for your business idea. The right type of financing depends on factors like the mix of debt and equity or your willingness to involve partners and investors. Financing must always match your business model, financial situation, and business stage.

Among others, the following financing options are available to you:

• Financing through equity
• Loans and grants for self-employed
• Money from investors
• Crowdfunding
• Start-up grants

Are you looking for the right financing for your company? With Pay later from Qonto, you can receive immediate funding to settle your invoices - and pay them back later in 3 monthly installments.

When starting your own business in Germany, you can choose from numerous types of business structures. They're broadly divided into:

• Sole proprietorships
• Partnerships
• Corporations

Sole proprietorships are often started by solo entrepreneurs. They own it entirely and are fully liable, even with personal assets. Starting is cost-effective and can occur without or with any capital.

Kleinunternehmerregelung (Small business owner regulation) - from 2025, the turnover limits increase to €25,000 for the previous year and €100,000 for the current year. When invoicing, you must include the note: “Gemäß § 19 Abs. 1 UStG wird keine Umsatzsteuer berechnet.”

Partnerships require at least two participants. All are personally and fully liable with their personal assets. A capital contribution is possible but not mandatory.

Corporations focus on the capital contributed. They strictly separate the company and shareholders. At least two participants are required, and a capital contribution between €1 and €50,000 is mandatory. Liability is through corporate assets.

Choosing a legal structure has personal, financial, tax, and legal implications. It should be well-considered, not just for the startup but also for the future. A company form that's perfect at the start of your self-employment might later become a disadvantage due to business changes.

With your business name, brand name, and logo, you set yourself apart from competitors. Well-chosen, it gives you a unique market position and secures a competitive advantage for your self-employment.

However, remember to protect your brand name. Otherwise, you lack the legal basis to prevent competitors from using your name or suing them for damages.

For the effective legal protection of your company name in Germany, the German Patent and Trademark Office (DPMA) is responsible. If your company operates internationally, you should also protect your company name abroad.

You can obtain trademark protection within the EU, known as the Union trademark, from the European Union Intellectual Property Office (EUIPO).

When starting your own business, it's sensible to open a separate business account. This helps you clearly separate business and personal transactions. A freelancer account not only makes it easier to keep track of your income and expenses, but also appears more professional to clients and business partners.

Most banks and online financial service providers offer special business accounts with different conditions. Compare the offers and choose the model that best suits your business model.

Still looking for the right account for your business? Try Qonto for free and open an account - starting at just €9 per month.

Before you start your business activity, in most cases, you need to register a business with the relevant authority. The business license legitimizes your entrepreneurial activity. The registration process is generally straightforward: you fill out a form, pay a fee, and then receive your business license.

Find out in advance which documents you need and whether special permits are required for your business activity.

After Gewerbeanmeldung, you'll receive the “Fragebogen zur steuerlichen Erfassung” (tax registration questionnaire) from your local Finanzamt. You can complete this form for free via Qonto's online form, which comes with step-by-step explanations, all in plain English.

Alternatively, you can complete the form in German via the online tax office, ELSTER, or download the form and send a paper copy.

This questionnaire for tax registration will ask you to provide information about:

• Your planned activity
• Income forecast
• Whether you want to apply for the small business owner status (Kleinunternehmer)

This registration should ideally take place before you start your business activity, to stay on the right side of tax laws. However, once you've submitted the form to the Finanzamt, you can immediately start finding customers and providing them with your services, without having to wait for a response from the Finanzamt. You can invoice them for the work done later, once the Finanzamt has got back in touch with you.

Self-employment also comes with risks. Therefore, it is important to inform yourself early about necessary insurances. Consider both your personal and business risks.

A professional liability insurance can, for example, protect against financial damages caused by professional errors. Health insurance is mandatory in Germany - consider whether you want to be insured publicly or privately.

Additionally, depending on the field of business, it might be wise to take out other specific insurances. It's best to seek advice from insurance experts on this matter.

There are various scenarios for becoming self-employed. These primarily include:

• Part-time self-employment
• Transitioning from school to self-employment
• Moving from unemployed to self-employed
• Going from traditional employment to self-employment

Many choose to gradually transition into self-employment by starting a side business. This has advantages:

• You remain socially insured through your main employer.
• A regular salary continues to provide financial stability.
• You have the opportunity to develop your business idea at your own pace.
• Often, less start-up capital is required.

However, some points should be considered: It is important to inform your main employer about your plans to start a business. The salary from your permanent job should constitute the main part of your income to avoid having to pay social security contributions yourself. Consulting with your health insurance regarding your income situation is also highly recommended.

Self-employment during college is similar to part-time startup, as studying is considered the main occupation. It's crucial to inform your health insurance about your business startup and ensure you don't work more than 20 hours per week during lecture periods to maintain student status.

For unemployed individuals, there is an opportunity to re-enter the workforce by starting their own business. They can take advantage of the start-up grant. To receive this, several conditions must be met:

• receiving German unemployment benefits (ALG I),
• at least 150 days of entitlement to ALG I when starting,
• presenting a business plan,
• a positive assessment of the business idea,
• proof of relevant qualifications.

If the grant is approved, there's financial support for up to 15 months.

When transitioning from employment to self-employment, changes occur, especially in taxes and insurance. Instead of typical taxes on salaried work, a specific income tax or corporation tax applies, depending on the business structure. Additionally, self-employed individuals must pay various taxes, such as:

• sales tax,
• trade tax
• income tax,
• and more.

The exact types of taxes and possible exemptions - such as the small business regulation - depend on the legal structure.

Regarding insurance, self-employed individuals are responsible for their own protection and must make decisions about health and pension insurance.

Before embarking on the path to self-employment, have a clear idea of the costs you might face. Startup and ongoing costs vary by business type and industry.

Here's an example overview of potential expenses:

The actual costs can vary greatly depending on the business model and individual requirements. It's smart to create a detailed business plan and seek expert advice if necessary.

Are you looking to finance a business opportunity? At Qonto, you can access unique offers with exclusive conditions.

Self-employment offers a range of opportunities but also presents challenges. On one side are the freedoms that come with independence and the prestige enjoyed as an entrepreneur.

On the other hand, one must deal with income uncertainty, lack of regulated work hours, and additional responsibilities. It's important to weigh both sides and prepare well for the challenges of self-employment.

Below, we summarize the pros and cons of self-employment.

The KfW Start-up Monitor 2018 (link in German) showed that after just one year, 14% of all new businesses no longer exist. And if you focus on start-ups in Germany, the picture becomes even bleaker.

Almost 70% of all start-ups have to close their doors within the first three years. Various surveys even confirm that between 70% and 80% of all start-ups cease operations during this period.

The reasons for this failure are diverse, including:

• lack of market demand
• poor business planning and execution
• lack of expertise
• insufficient experience of the founders

Even after the first three years, the path for many young companies is rocky, with some filing for bankruptcy or ceasing operations for other reasons. It's therefore crucial to be well-prepared for the challenges of self-employment and to be aware of the risks.