The SBA defines a sole proprietorship as a business owned and operated by one person. Getting started is easy. All that is basically required is a business license or in some circumstances a permit to get up and going. As you might imagine there are many advantages and disadvantages to this common business structure.
Advantages
Easy Startup. A sole proprietorship is easier to start than a partnership, or corporation. Sole proprietorships have fewer legal restrictions. Most individuals can start the business using their own name. For example, if your name is Martha Swanson. You might call your quilting biz "Martha Swanson's Quilts" without any problem. Later, if you hire employees, you will need to register your business with the federal government. State and local registration might also be required.
Increased Profits. If you are the sole owner you will not have to share your profits. You make all the required financial decisions on how much goes in your pocket or invest back into the business.
Control. You control the business. Your word is final. You have complete freedom in your decision making process because you do not have meddling business partners.
Fast Response. You respond quickly to business situations. You do not have to consider other management decisions or wait for your business partner's input. Fast response in a crisis is very important to overall business success.
Taxes. No special extra taxes for this business form. Profits are considered the business owner's personal income and are taxed accordingly.
Disadvantages
Unlimited Liability. If you are a sole proprietor of a home based or small business you are responsible for all the debts made by your business. The debts might soon exceed your initial business investment. This is why it is critical that you know your business liability extends to your personal property.
Less Capital. Capital is limited to your personal assets or any money you borrow and invest in your business. Sole proprietorships usually have less capital available than other business structures. Also, sole business owners usually have more difficulty borrowing money to invest in the business.
Financial Emergencies. If sickness occurs your business will suffer because you do not have a business partner to rely upon to take up the slack.
Limited Talents. You will rely only on your own talents and business skills. And you will not be able to share view points with more experienced partners.
Deductions. Sole proprietor might not be eligible for many business deductions available to other business structures. These deductions include workers compensation and certain health and insurance coverage.
Use the information in this article to weigh the advantages and disadvantages of this business structure. If you would like further information on Business Startups, or to even take free workshops on starting a business, visit the SBA.
 |
