SOLE TRADERS

Aims To understand what a sole trader is To look at the advantages and disadvantages of setting up a sole trader business To understand the concept of unlimited liability

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DEFINITION: A sole trader is an INDIVIDUAL who may or may not employ other people, but who OWNS and operates the business and who has UNLIMITED LIABILITY. Unlimited liability

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ADVANTAGES OF SOLE TRADERS EASY TO SET UP It is easy to set up a sole trader. A person can set up a business immediately. There are few, if any, forms to fill in or procedures needed to set. EASY TO RUN Easier to run than any other types of business. The owner is in sole charge, easier in terms of decision making. They do not need to get others to agree before making changes

TAX ADVANT -AGES Taxed differently eg. NI contributions are lower There are no legal fees to set the firm CONTROL The owner is in sole charge – can make whatever changes they want No meetings required to implement these changes

CAPITAL A business nearly always needs some capital to start trading However, the amount of money needed to set up a sole proprietorship is often small PROFITS All the profits of the business are kept by the owner Effort = reward The harder the sole trader works, the more successful the business becomes, more can be earned

PRIVACY Only the Inland Revenue & Customs and Excise need to know about the finances of a sole trader Don’t have to publish info. Which could be seen by the public or by rivals FLEXIBILITY Many sole traders have some choice about when they work They don’t have to ask permission eg. To have an hour off

DISADVANTAGES UNLIMITED LIABILITY If the business does very badly and has lots of debts, as a sole trader you must pay off these debts even if it means selling all your possessions, like a car LACK OF CONTINUITY The sole trader IS the business, it may not survive if the sole trader stops work There may be no one for you to sell it off to or even to pass it on to

ILLNESS The business may stop if the sole trader is ill They would have to close the shop and consequently could lose income and profits LONG HOURS Sole traders work really long hours to keep their business afloat

LIMITED SPECIALISATION Sole traders carry out jobs in the business themselves larger firms can afford to buy in specialist workers, sole traders may not gain advantages related to specialisation Limited economies of scale Higher average costs than larger businesses. Unable to gain economies of scale – don’t get same discounts DIFFICULTY OF RAISING CAPITAL may have to borrow the money from a bank, who may only agree to it if they pay a high interest repayment rate find it hard getting money to expand the business

QUESTIONS What is a sole trader? What are the advantages of setting up a sole trader business? What are the disadvantages of setting up a sole trader business? What is unlimited liability?