1. SOLE TRADERS

2. 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)

3. 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

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

5. 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.

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

7. 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

8. 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

9. 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

10. 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

11. Disadvantages
In pairs come up with what you believe to be the disadvantages to starting a business as a sole trader.

12. 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

13. 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

14. 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

15. Task
Complete Examination Questions on Page 151 of the book provided

16. 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?

17. Partnerships
We are now going to look at partnerships.