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Starting a business can be a challenging yet rewarding experience. One of the key decisions that entrepreneurs face is choosing the right business structure. Among the various options available, the sole trader business structure is a popular choice, especially for small businesses. Want to find out more? Read on!
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Jetzt kostenlos anmeldenStarting a business can be a challenging yet rewarding experience. One of the key decisions that entrepreneurs face is choosing the right business structure. Among the various options available, the sole trader business structure is a popular choice, especially for small businesses. Want to find out more? Read on!
A sole trader or sole proprietor is someone who establishes and operates a business on their own.
This individual sole trader is responsible for all aspects of the business, including making decisions, managing finances, and assuming liability for any debts or legal issues that may arise. It is a straightforward and flexible business structure that offers the owner complete control over their company. It is an excellent option for individuals who are just starting out and want to keep their business operations simple and manageable.
People operating a sole trader business work for themselves. Sole traders can hire other people to work with them; However, the only person responsible for the business is the individual operating as a sole trader. They are responsible for all overall business activities and are actively involved in running the business.
The characteristics of a sole trader include:
Confidence: to make decisions and take responsibility for your decisions.
Specialised skills: to succeed at what they do (i.e., plumbing, graphic design, or cutting hair).
Managerial skills: to run the business and keep updated business records.
Flexibility: for carrying out tasks like contacting clients or keeping in touch with manufacturers.
Self-discipline: all business activities are in their own hands. They do not report to an executive, which also means that they do not get advice from anyone.
Motivation: the business will fail to operate unless the sole trader puts in time and effort.
Operating as a sole trader offers several benefits, including:
These benefits can make the sole trader business structure an ideal option for individuals who want to start a small business and have complete autonomy in decision-making and management.
In the UK, sole traders can start trading as soon as they wish, as there is no need to set up the business officially with a government establishment. As long as a sole proprietor declares their profits to the HMRC (Her Majesty's Revenue and Customs), they are all set up. It is important to declare profits in order to be taxed appropriately.
While operating as a sole trader has many benefits, it is important to consider the potential drawbacks.
Some of the major disadvantages of this business structure include the following:
Unlimited liability is essentially the opposite of limited liability.
It is important to carefully weigh these factors before deciding whether the sole trader business structure is the right choice for you.
To summarise the advantages and disadvantages of operating as a sole trader, we have prepared this table:
Advantages of a Sole Trader | Disadvantages of a sole trader |
Easy to set up. | Unlimited liability |
Quick decision-making process. | Lack of support and guidance |
Be your own boss. | Solely responsible for all your decisions. |
You have full control over the profits | Limited access to funding |
Direct contact with clients and the market. | Risk of losing customers when taking time off |
It is a relatively popular form of business. There are various types of occupations you can have as a sole trader. Sole trader examples include:
Tradespeople: plumbers, electricians, or gardeners.
Freelance workers: graphic designers, web designers, photographers, or artists.
Independent contractors: tutors, food delivery drivers, couriers.
Operating as a sole trader is a fast and simple way of offering your services. As an example, let's take a look at Chloe, who is a freelance copywriter. As a copywriter, Chloe writes articles and blog posts for companies, promoting their products and services, encouraging readers to visit their websites. She enjoys reaching out to clients, networking, and setting up her own schedule. Chloe sets up a sole proprietorship so she can enjoy flexible working hours, make her own decisions about her business, and has the freedom of not having to report to a manager.
Her business can respond directly to the needs of her clients, engage with them on a personal level, and make decisions freely about the number of clients she takes on. Although Chloe can make all these decisions on her own, it does not mean that she will always make the right decisions for her business. Sole proprietors need to be careful and approach their operations from a managerial perspective. Otherwise, they risk losing track of their goals.
A sole trader or sole proprietor is someone who establishes and operates a business on their own.
Sole traders can hire other people to work with them; However, the only person responsible for the business is the individual operating as a sole trader.
To become a sole trader, a person should have the following charateristics.
Confidence
Specialised skills
Managerial skills
Flexibility
Self-discipline
Motivation
Sources of finance available for a sole trader include:
Features of a sole trader are attributes that make it different from other types of business and include:
What is the definition of a sole trader?
A sole trader is a business that is owned and managed by one person. People operating a sole trader business work for themselves and are responsible for all business activities and decisions involved in running the business.
What is another term for a sole trader?
A sole proprietor. The terms 'sole trader' and 'sole proprietor' are synonymous.
Define unlimited liability.
Unlimited liability is when an individual is personally responsible for all the actions of their business. For a sole trader there is no distinction between the individual and the business. This means that the individual is personally responsible for their business losses and problems. For instance, if a sole proprietor borrows money from a bank and cannot repay their debt, they may risk losing personal possessions.
Which one of the following is not a common characteristic of a sole trader?
Confident in making decisions
Has business and management skills.
Can manage their time effectively.
Reports directly to their manager.
D.
One of the main disadvantages of a sole trader is:
It is very complicated to set up and register.
It can get quite lonely working on your own.
You have direct contact with clients, making it hard to keep up with all the communication.
You rely on your employees for a lot of different business procedures.
B.
Why would someone choose to operate as a sole trader rather than work for a company?
Flexible working hours.
Ability to make all decisions without having to report to a manager.
Being 'your own boss'.
Direct relation to the market and clients.
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