What are the advantages and disadvantages of sole traders?

There are different forms of businesses you can start --- The limited liability companies, the sole proprietorship, partnerships and several other businesses that are increasingly complex and legally allowed due to the kind of operations you intend to run.

However, of all these types of businesses the easiest one to start is the sole trader. What is a sole trader? What are the advantages and disadvantages of sole traders? I can imagine you asking these questions and wanting to know the answers to them. Some great examples of this type of business include; Gardeners, Plumbers, Decorators, etc

In this blog post, we are going to examine what a one man business is, it?s merits and demerits, and hopefully, it would help you decide whether it is the right type of business to start or not.

What Is Sole Trader?

A sole proprietor --- This is another word for sole trader, and is a type of business owned and operated by an individual who makes all business decisions without consulting anyone, takes responsibility and profits from the business. It is in effect a one-man show.

Having known what sole trader is, lets us take a look at the advantages inherent in this type of business.

Advantages of Sole Trader

  1. Control: The number one reason most people start a sole proprietorship business is because of the control it gives them. They can make any business decision at the spot without the need to consult anybody.
  2. No Profit Sharing: As a sole trader, you retain all the profit from the business. There?s no partner or shareholders to share the profits with.
  3. It is easy to start: there are no paper works to fill with the company?s house, unlike limited companies. No complex annual tax and financial filings to be made. However, you?re expected to keep records of your invoices and receipts.
  4. Fast Decisions: If you don?t like haggling and making compromises in business then sole trader is right for you. You have the freedom to take decisions without anyone breathing down your neck!

Just as there are advantages to this type of business, there are also disadvantages associated with sole trader. Some of them include;

  1. Solely Liable for Any Consequences: As the sole trader, you are completely liable to any unforeseen misfortune that may befall the business. For instance, in the case of a business closure you bear the brunt of the debts and liabilities of the business although having an insurance could offset most of these costs.
  2. It Might Be Difficult Getting A Bigger Contract: Operating as a one-man business has its drawback, one which is the difficulties you may encounter when applying for contracts say from a government agency that requires your audited financial records be made public.
  3. The Business Stops If You?re Unable To Work: As a sole trader, you are your business, and your business is you. Hence, if for whatever reason you fail to work, then the business closes.

Starting a business could be a daunting adventure, however choosing the type of business to operate based on your needs, the resources available to you, and personality goes a long way in easing the journey.

We hope that this blog post has answered your question; what is the advantages and disadvantages of sole trader, and has clarified some gray areas for you.

We would love to hear your thoughts on this!