Sole Trader

Operating as a sole trader

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:

1. Confidence: to make decisions and take responsibility for your decisions.

2. Specialised skills: to succeed at what they do (i.e., plumbing, graphic design, or cutting hair).

3. Managerial skills: to run the business and keep updated business records.

4. Flexibility: for carrying out tasks like contacting clients or keeping in touch with manufacturers.

5. 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.

6. Motivation: the business will fail to operate unless the sole trader puts in time and effort.

Characteristics of a sole trader

Sole trader benefits

Operating as a sole trader offers several benefits, including:

• being your own boss;
• you have complete control over decision-making;
• it is easy and cheap to set up;
• you have full control over the profits.

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.

Sole trader disadvantages

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, which means that the sole trader is personally responsible for all the debts and losses incurred by the business, including the risk of losing personal assets in the case of bankruptcy or inability to repay loans
• Lack of support and guidance, as the sole trader must handle all aspects of the business, including dealing with problems and managing finances
• Working primarily on your own, which can lead to feelings of isolation, especially during periods of stress, and can make it difficult to manage time effectively. You can also risk losing customers and profits if you take time off and close your business.
• Limited access to funds, which can make it challenging to grow the business. Often sole traders do not have enough funds for expansion, as they need to use their own money if they wish to grow their business. It is possible for a sole trader to take out a loan, but this can be tricky sometimes, as banks may charge high-interest rates because of the risk of the sole trader not being able to repay their debts on their own.

It is important to carefully weigh these factors before deciding whether the sole trader business structure is the right choice for you.

Sole trader advantages and disadvantages summary

To summarise the advantages and disadvantages of operating as a sole trader, we have prepared this table:

Sole trader examples

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.

Setting up as a sole trader

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.