7 Benefits of Being a Business Sole Trader
Are you thinking of starting your own business? If so, you might be wondering what type of business structure is best for you. One of the most common and simple options is to become a sole trader. A sole trader is someone who runs their own business as an individual and is self-employed. In this article, we will explore some of the benefits of being a business sole trader and how it can help you achieve your goals.
1. Easy to set up and run
One of the main advantages of being a sole trader is that it is very easy to set up and run your business. You don’t need to register a company name, file annual accounts, or pay corporation tax. You just need to register as self-employed with HM Revenue and Customs (HMRC) and keep track of your income and expenses. You also have full control over your business decisions and can adapt quickly to changing market conditions.
2. Low start-up costs
Another benefit of being a sole trader is that you can start your business with minimal costs. You don’t need to pay any fees to register your business, hire an accountant, or buy shares. You can also use your personal assets, such as your car or home, for your business purposes without any legal complications. This means you can save money and invest more in growing your business.
3. Personal satisfaction
Being a sole trader also gives you a lot of personal satisfaction and fulfillment. You can pursue your passion, express your creativity, and make a positive impact on your customers and community. You can also enjoy the flexibility and freedom of working for yourself, setting your own hours, and choosing your own projects. You can also take pride in your achievements and celebrate your successes.
4. Tax benefits
As a sole trader, you can also benefit from some tax advantages. For example, you can claim various expenses as deductions from your taxable income, such as travel costs, equipment, advertising, and training. You can also use the personal allowance, which is the amount of income you can earn before paying income tax. For the 2021/22 tax year, the personal allowance is £12,570. Additionally, you can use the trading allowance, which is a tax-free allowance of £1,000 for small businesses with low income.
5 .Retain all profits
Another perk of being a sole trader is that you get to keep all the profits you make from your business. Unlike a limited company, where you have to share the profits with other shareholders or directors, you can decide how much money you want to reinvest in your business or take out as personal income. This can motivate you to work harder and smarter and increase your earning potential.
6. Privacy
As a sole trader, you also have more privacy than a limited company. You don’t have to disclose any information about your business to the public, such as your financial statements, directors’ details, or shareholders’ names. You only have to report your income and expenses to HMRC for tax purposes. This means you can protect your trade secrets, avoid unwanted attention, and maintain a competitive edge.
7. Expert export management
Finally, being a sole trader can help you manage your exports more effectively. If you sell goods or services to customers outside the UK, you can benefit from various schemes and support from the government, such as the Exporting is GREAT campaign, the UK Export Finance (UKEF), and the Department for International Trade (DIT). These organisations can help you find new markets, access finance, reduce risks, and comply with regulations.
Being a business sole trader has many benefits that can help you start and grow your own business. You can enjoy the simplicity, low costs, personal satisfaction, tax benefits, profit retention, privacy, and expert export management that come with this type of business structure. However, being a sole trader also has some drawbacks, such as unlimited liability, difficulty raising funds, and lack of continuity. Therefore, you should weigh the pros and cons carefully before deciding whether being a sole trader is right for you.
The Rise of Sole Traders in Business
Sole traders are businesses that are owned and run by one person, without any legal distinction between the owner and the business. They are the simplest and most common form of business structure in many countries, especially in the UK, where they account for more than half (56%) of the total business population . In Australia, sole traders make up 62.8% of all businesses , while in the US, they represent 86.4% of non-employer businesses and 14.4% of small employer businesses .
One of the reasons for the popularity of sole traders is their low entry barriers and flexibility. Sole traders do not need to register their business with the government, pay any incorporation fees, or file any annual reports. They also have full control over their business decisions and can easily adapt to changing market conditions. Sole traders can also benefit from some tax advantages, such as deducting their business expenses from their personal income and paying lower self-employment taxes.
The Decline of Global Demand for Sole Traders
However, being a sole trader also comes with some challenges and risks. Sole traders have unlimited liability for their business debts, which means they can lose their personal assets if their business fails. They also have limited access to finance, as lenders and investors may perceive them as less credible and stable than other types of businesses. Moreover, sole traders face intense competition from larger businesses that can offer lower prices, higher quality, and better customer service.
The global demand for sole traders has been declining in recent years due to several factors. The COVID-19 pandemic has severely affected many small businesses, especially those in the service sector, such as restaurants, bars, salons, and gyms. Many sole traders have been forced to close down or reduce their operations due to lockdowns, social distancing measures, and reduced consumer spending. According to a report by the UK government , the number of sole proprietorships decreased by 3.7% between 2020 and 2021, while the number of companies increased by 8.7%.
Another factor that has contributed to the decline of global demand for sole traders is the rise of e-commerce and online platforms. More consumers are shifting their purchases online, where they can find a wider range of products and services at lower prices and with faster delivery. Online platforms also enable consumers to compare different options and read reviews from other customers before making a purchase decision. This makes it harder for sole traders to compete and differentiate themselves from other sellers.
Sole traders are an important part of the business landscape in many countries, but they face many challenges and risks in the current market environment. The global demand for sole traders has been declining due to the impact of the COVID-19 pandemic, the rise of e-commerce and online platforms, and the competition from larger businesses. Sole traders need to adapt to these changes and find ways to survive and thrive in the new normal.
References:
https://www.ssm.com.my/sites/default/files/guidelines/OWNER%20RESPONSIBILITY_new.pdf
https://www.chamberofcommerce.org/small-business-statistics/
https://www.forbes.com/advisor/business/small-business-statistics/
https://smallbusinessloansaustralia.com/australian-small-business-family-enterprise-report/
https://www.gov.uk/set-up-sole-trader
https://www.gov.uk/working-for-yourself
https://www.gov.uk/government/organisations/uk-export-finance
https://www.gov.uk/government/organisations/department-for-international-trade
https://www.gov.uk/guidance/exporting-is-great
