The easiest type of business to run is that of a sole proprietorship. Any Dick, Tom, and Harry can establish such business with a little capital. First of all, let’s tackle the elephant in the room. What does sole proprietorship mean?
A ‘sole proprietorship’ in simple terms means a one-man business. It’s a business organization owned and controlled by only one person. In other words, this person is fully responsible for all decisions though they may be other employees working under them. Furthermore, one unique feature of a sole proprietorship is that it has no legal entity independent of its owner. If you’re interested in starting a business but have no idea, you could check here.
The sole proprietorship has its advantages and downsides. Here’s what you need to know about these.
Advantages
It’s very easy to establish. As stated earlier, the sole proprietorship is very easy to establish. Less government paper works. Most times, registration fees are the only fees involved in establishing it. And, you may have to acquire a license or a permit depending on the state you live in, but this is nothing compared to other types of businesses.
Complete control. As the owner of the business, you have complete control over the business. You do all the hiring and the firing and exploit opportunities. You decide everything and anything for the business, especially in an emergency. You’re your boss.
An unlimited number of employees. There’s no limit to the number of employees you can hire. This hiring flexibility is advantageous in changing the business structure any time you want. You can quickly hire top talent, thereby increasing tax benefits without following the due processes associated with corporate organizations.
Quick decisions. As the sole proprietor of a business, you can quickly make quick decisions without getting the nod of approval from other board members, as is the case with corporate organizations. You are not restricted by any form of formality.
Fewer costs. Starting a business costs less; this is because the business fees you have to pay are few. Plus, it has a low startup cost. What more? When it comes to making financial decisions, you can cut corners and minimize wastages without consulting anyone.
Disadvantages
Financing is a problem. It’s harder getting securing loans from banks when you are the sole proprietor of a business. This is because corporate or established organizations stand a better chance of securing a loan than sole proprietors.
Secondly, all the liability comes from you. No liability protection. Your assets are your collaterals. Nothing can stop your lenders from coming for your property if you default. If your business fails, you swallow all the loss.
Tracking expenses is difficult. Lack of financial control and management problems are serious concerns in a sole proprietorship. This makes tracking business expenses difficult why because you have one person playing the role of manager, accountant, secretary, etc. Plus, decision-making errors can also add to this.
Limited growth. The sole proprietorship cannot grow beyond a certain level. Many factors play a role in this. But, one of the key factors is conservatism. This is because only one person controls the company and makes all the decisions. Sometimes, these decisions may be hasty and disastrous thereby crippling the growth of the company.
Is it worth it?
We have shown you the key advantages and disadvantages of a sole proprietorship. Get More Information. Now, the ball is in your court to decide if it’s worth it or not. What do you think? Don’t forget to leave a comment behind!
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