Advantages and Disadvantages of Sole Proprietorships

Perhaps you are interested in starting a business and want to know what is a sole proprietorship. A single person is known to own, establish, control and finance this type of business without external assistance. He/she is referred to as a sole proprietor or sole trader. The business that the sole proprietor or sole trader runs is referred to as sole proprietorship or sole trade.

Advantages of Sole Proprietorships

1. Effort-reward relationship: It is your sole responsibility to take care of the business and ensure it flourishes. Only then can you make profits that you do not have to share with anyone else except business-related expenses. At the same time, you also share the entire risk by yourself. It is this feature that tends to excite many, compelling them to chase creative ideas, converting them into grand realities.

2. Easy formation: It is easy to form proprietary concerns as it requires very few legal formalities. Registration or agreement is not necessary with anyone. Such firms can also be formed and dissolved overnight.

3. Quick decisions: It is possible to rectify things without requiring anyone’s permission. At the same time, you can exploit opportunities that come your way immediately. You can also offer loyal and new customers fat discounts ensuring they do not go to your competitors. This way, you can take effective and quick decisions in your favor. But one of the disadvantages of sole proprietorships is you do not get any support and there are chances of making wrong decisions.

4. Complete control: You are in full control of your business. This is one of the main advantages of sole proprietorships that you can enjoy. You are not answerable to anyone.

5. Personal touch: You can incorporate your expertise, knowledge and skills in the business. You can also come up with creative ideas and implement them at the earliest. There are several articles on the web on what is a sole proprietorship that you can go through and gain knowledge.

6. Smooth, efficient operations and economical: You can use the available resources as you like to promote your business and eliminate wastage. Also, you can control operational costs.

7. Keep secrets: You do not have to divulge your business secrets to anyone.

8. Keep business flexible, dynamic and simple: You can curtail expenses, reduce the production of non-performing products and promote that sells well. You can change your strategies depending on changing customer preferences and tastes.

Disadvantages of Sole Proprietorships

1. Limited shelf life: Proprietor businesses are always threatened by big businesses. Hence, they have a limited period and may disappear into oblivion due to stiff competition. But the advent of sophisticated devices and the internet has enabled the advantages of sole proprietorships to some extent.

2. Small Size: This is one of the major disadvantages of sole proprietorships. Being limited in resources, it cannot grow big. Big expansions are simply out of question, thus not deriving economics of scale. Such small concerns do not benefit customers much.

3. Lack of talent, professional skills and expertise: You may have limited expertise or knowledge or be able to evaluate customer taste, changes in demand or competition. If are not able to stay with the prevailing trends and foresee the future, then chances are your business will close down.

4. Unlimited liability: In case, you fail to make profits, then you are left with all the dues of your business that needs to be cleared. It is your responsibility to bear the losses and make all payments to your creditors. There are many who are required to part their accumulated wealth, just to clear due payments.

Getting to know what is a sole proprietorship, its advantages and disadvantages will allow you to choose the best type.