Sole Trader – What Are The Advantages And Disadvantages Of Being A Sole Trader?

Sole Trader

Are you thinking of going into business? Are you debating on a sole proprietorship, partnership or company? Well, each of these business structures has their own advantages and disadvantages. Here’s what you need to know about the advantages and disadvantages of being a sole trader.

Advantages Of Being A Sole Trader

• You’re The Boss – It’s always frustrating to have superiors, especially those with a vendetta against you. Well, if you’re looking for the best way to manage your own business, being a sole trader is the best way to do it. Here, you’re the boss and always make the decisions without consulting anyone.

• You Keep 100% Profits – There might be some merits to running a company or a partnership but the biggest disadvantage is that you have to share the profits with other founders. Well, as a sole trader, you can always keep 100% of the profits. Whether you choose to reinvest or use the profits for another business venture, it’s your money and you can do anything you want with it.

• Low Start-Up Costs – Creating a new business especially in this economy is very tough. Well, if your budget is a little strict, you should consider a sole proprietorship. Here, the start-up costs are considerably lower than any other investment and you can always recover them faster.

• Maximum Privacy – Are you worried that too many people are interested in your financial status? Well, you can’t achieve complete autonomy if you’re running a company or partnership and that’s where a sole proprietorship comes in handy. As long as the business isn’t illegal, you have the right to privacy and you can enjoy it completely.

• Easy Start-Up Process – Take an instance where people are establishing a company. There are too many legal requirements that should be met before the company or partnership can actually start running. However, it’s completely different with a sole proprietorship. As long as you meet the bare minimum, you can start running our business immediately and recover the start-up costs.

• Effortless Change Of The Legal Structure – A sole proprietorship is the basic stepping stone for any business. Therefore, if you’re planning on changing to a partnership or company, you can always do it effortlessly. On the other hand, changing a company back to a sole proprietorship is always tough.

• Easy Closure – Have you been trading for a while without any profits? Have you achieved what you wanted to do with the business? Are you looking to close it up immediately? Well, with a sole proprietorship, the closure process is very fast and effortless.

Disadvantages Of Being A Sole Trader

• Unlimited Debt Liability – As a sole trader, there isn’t a distinction between the private and business assets. Therefore, in the event of any debs, especially during insolvency or loan defaulting, the liability will be recovered from your own personal assets as well as the business ones. Additionally, since you’re the only legal director of the business, you have the liability to pay all the debts accrued by the business while in operation.

• Limited Capacity For Raising Capital – Most sole traders choose to finance their business with their own assets and cash flow. Additionally, they can ask for donations or apply for loans from banks. However, most of the avenues for collecting capital are completely closed to them compared to what’s available for companies and partnerships.

• Liability For Wrong Decision Making – If you’re not conversant with running a sole proprietorship, it’s always a good idea to seek assistance where necessary. Keep in mind that as a sole trader, you’re responsible for making all the decisions. Therefore, if you make any wrong decision that might affect you and the society, you’re entirely liable for it.

• Taxation Hardships – A company is always treated as a separate entity from the directors. However, as a sole trader, you’re taxed as an individual so your income taxation level is definitely higher. Of course, you can always find a few taxation loopholes to reduce the payable tax but all the same, the burden on you is always heavy.

• Fewer Vacation Days – If you’re running the business on your own, it’s always tough to take vacation days. That’s because when you’re out on vacation, you have to close the business and you will lose a lot of profit. Therefore, you’re forced to run the business 24/7 with no hope of taking leave.

In conclusion, before starting a sole proprietorship, you should take a look at the pros and cons and decide on the best way forward. If you need any assistance or further information please contact us.

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