SOLE TRADERS

Learning Objectives To understand what a sole trader is (E) To analyse the advantages and disadvantages of setting up a sole trader business (C) To evaluate the reasons for starting a business as a sole trader. (A) http://www.bbc.co.uk/learningzone/clips/exploring-the-sole-trader-business-model/13155.html

SMALL LARGE Ask them all the different types of businesses they can remember in their local high street. Based on what they say, group all the small businesses on one side and larger businesses on the other. Then ask them what all the businesses on the right/left side have in common eg will hopefully say one is small, other is larger etc

Examples Hairdresser Florist Coffee shop Market Stall Have visual representations of small businesses Coffee shop Market Stall

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 - this means that the owner has a LEGAL OBLIGATION to pay any losses made by the business. For a sole trader there is no difference in law between the profits and debts of the business and the finances of the individual owning the business. Legally they are ONE and the same. DICTATE to class: Unlimited liability - this means that the owner has a LEGAL OBLIGATION to pay any losses made by the business. For a sole trader there is no difference in law between the profits and debts of the business and the finances of the individual owning the business. Legally they are ONE and the same.

Advantages In pairs come up with what you believe to be the advantages of starting a business as a sole trader (individual).

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

Taxed differently eg. NI contributions are lower 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

Many sole traders have some choice about when they work 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 In pairs come up with what you believe to be the disadvantages to starting a business as a sole trader.

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

The business may stop if the sole trader is ill 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

Sole traders carry out jobs in the business themselves 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

Task Complete Examination Questions on Page 151 of the book provided

EXTENSION 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?

Partnerships We are now going to look at partnerships.