Advantages of a Sole Proprietorship
Sole traders benefit from the following advantages:
- Control - Sole traders maintain full control of their business. Running it how they please without the interference of others.
- Profit retention – Sole traders retain all the profits of their business.
- Private data – Information about sole traders is kept private, unlike that of limited companies which is necessarily made public after registration with Companies House.
- Specialist – Often a small business, sole traders can offer a more personal service with local roots and ties. This can be more appealing to potential customers in the local community.
- Personal – Because there is no need to confer with other decision makers, sole traders can make decisions quickly and act on them swiftly, providing for the needs of their customers.
Disadvantages of a Sole Proprietorship
Just like any other form of business, being a sole trader can also have its disadvantages.
- Liability – sole traders are not seen as a separate entity by the law. Therefore, they are subject to unlimited liability. This means if the business gets into debt, the business owner is liable. In the worst case, this may mean a person risks their home, personal savings and any other assets they have both in and outside of the business.
- Finance – sole traders often find it difficult to raise finance to fund their business. They may struggle with expansion in the future.
- Reverse economies of scale – sole traders will be unable to take advantage of economies of scale in the same way as limited companies and larger corporations, who can afford to buy in bulk. This might mean that they have to charge higher prices for their products or services in order to cover the costs.
- Decision making – all decisions must be made by the sole trader. There is no room for help by others. So the success or failure of the business rests on one person.
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