Problems on Business relating to Sole Trader
24/07/2020A sole proprietor business is established, owned, financed and controlled by a single person who is known as sole trader or sole proprietor.
Such a business run by sole trader or sole proprietor is known as sole trade or sole proprietorship.
Advantages of Sole Proprietorship:
Sole proprietorship offers the following pros:
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Easy to Form:
Proprietary concerns can be formed easily and quickly. Very few legal formalities need to be fulfilled. There is no need to go for any registration or enter into an agreement with someone. One can form it and dissolve it quickly.
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Effort-Reward Relationship:
Proprietary ventures give a kick in the belly. You can burn the candle of energies and make money. You take the risk and get rewarded. The effort-reward relationship often excites people to chase creative ideas and turn them into successful ventures.
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Full Control:
The owner has full control over everything. He is answerable to no one else. He decides everything in the best interests of the business. Right or wrong, he takes charge of the situation.
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Quick Decisions:
Proprietors can put things in order quickly if something goes wrong. If opportunities come his way, he can exploit them readily. He can give a fat discount to a loyal customer on the spot if he feels that such a step brings in additional revenues in future. Small businesses are known for their quick and effective decisions.
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Economical and Efficient Operations:
The owner can put resources to best use. He can take steps to eliminate wastages of all kinds. He can control the cost of running the show.
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Personal Touch:
The owner can bring his skills, knowledge and expertise to the table. He can play with his ideas and get them going. He can convert his dreams into concrete realities. He can make things happen. He can use his brilliance to good advantage.
- Keep the Business Simple, Dynamic and Flexible:
The owner can cut everything according to the cloth available. If there is demand, he can increase the scale and reach. If the demand is sluggish he can limit orders, reduce stocks and take measures to save every penny. He can run the show in sync with changing customers’ tastes and preferences.
- Keep the Secrets Close to Heart:
The proprietor need not share business secrets with any one. He need not place all his cards on the table at any point of time.
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Society Gains as a Whole:
Small ventures benefit society a lot. Ownership is diffused. If the venture turns successful, it generates employment. Customers get what they want in nearby places.
Disadvantages of Sole Proprietorship:
Sole proprietorship suffers from the following drawbacks or cons:
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Small Size:
By its very nature, proprietary concerns cannot grow big. They have limited means. They cannot expand operations in a big way. As a result, they do not enjoy the economies of scale. Customers, in the final analysis, do not gain from such miniscule concerns in the long run.
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Limited Shelf Life:
You never know when a big Mall will come nearby and kill all small players. Small businesses have limited life spans. They exist for a while and disappear within no time if customers turn into mall rats (shopping always from big malls).
- Lacks Professional Skills and Talent:
The proprietor lacks professional skills, talent and expertise. He has limited knowledge and does not have the ability to gauze competition, changes in fashions and customer tastes and preferences, trends in economy etc. He cannot run the show in a professional way.
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See the Big Picture:
His overall knowledge of market, competition, products, tastes of customers, changes in fashions and trends, general trends in economy, danger from global firms etc.—is relatively poor. As a result he might take inappropriate decisions in a hurry, looking at things from a narrow perspective.
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Unlimited Liability:
If the small business owner fails, he has to swallow all losses. The liabilities of a firm might eat away the accumulated wealth of the owner almost instantaneously. The risk of unlimited liability forces many a sole proprietor not to expand operations beyond a point.
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Growth Prospects:
Business cannot go beyond a point for a variety of reasons—limited capital, owner lacks needed skills and competencies required to run the show on a large scale, unlimited liability compels many owners to remain small etc. The proprietary concern, therefore, does not grow to an optimum level and enjoy the economies of scale.