7 Reasons Why You Should Become a Sole Trader
Are you thinking of starting your own business? If so, you might want to consider becoming a sole trader. A sole trader is a type of business structure where you are the only owner and operator of your business. You have complete control over your business decisions, profits and losses. You also have some advantages over other types of businesses, such as:
1- Simplicity
Setting up as a sole trader is easy and cheap. You don’t need to register a company name or pay any fees to start trading. You just need to register for self-assessment tax and keep records of your income and expenses.
2- Flexibility
As a sole trader, you can work when and where you want. You can choose your own hours, location and clients. You can also change your business direction or diversify your services without much hassle.
3- Privacy
Unlike a limited company, you don’t have to publish your accounts or disclose any personal information to the public. You can keep your business affairs confidential and protect your reputation.
4- Personal touch
As a sole trader, you can build a strong relationship with your customers and suppliers. You can offer a more personalised service and tailor your products or services to their needs. You can also use your own name or a trading name that reflects your personality and brand.
5- Tax benefits
As a sole trader, you can claim various expenses as tax deductions, such as travel, equipment, home office and training costs. You can also use the cash basis accounting method, which means you only pay tax on the money you receive, not the money you are owed.
6- Retention of profits
As a sole trader, you get to keep all the profits you make from your business. You don’t have to share them with anyone else or pay any dividends. You can reinvest them in your business or use them for your personal needs.
7- Exit strategy
As a sole trader, you can close down your business easily and quickly if you want to. You don’t have to deal with any legal formalities or paperwork. You just need to inform HMRC and pay any outstanding tax liabilities.
Of course, being a sole trader also has some drawbacks, such as:
1- Unlimited liability
As a sole trader, you are personally responsible for any debts or losses your business incurs. This means that if your business fails, you could lose your personal assets, such as your home or car. You also have to pay any legal claims against your business from your own pocket.
2- Lack of support
As a sole trader, you have to do everything yourself. You don’t have any partners or employees to share the workload or the risks. You also have to deal with all the administrative tasks, such as accounting, marketing and compliance.
3- Difficulty in raising finance
As a sole trader, you may find it hard to get funding from banks or investors for your business. They may perceive you as a high-risk borrower or a low-potential venture. You may have to rely on your own savings or borrow from friends and family.
4- Limited growth potential
As a sole trader, you may face some limitations in expanding your business. You may not have enough time, money or resources to take on more customers or projects. You may also struggle to compete with larger businesses that have more economies of scale, expertise and reputation.
What Does Sole Trader Mean and How Is It Changing Globally?
A sole trader is a type of business entity that is owned and operated by one person. A sole trader has full control over the business and its profits, but also bears all the risks and liabilities. A sole trader can work in any industry, such as retail, services, or consulting. A sole trader does not need to register a separate legal name for the business, unless they want to use a trade name that is different from their own name.
The Global Trends of Sole Tradership
According to the World Bank, the number of sole proprietors in the world has increased from 1.2 billion in 2000 to 1.6 billion in 2019, accounting for about 20% of the global workforce. The growth of sole tradership is driven by several factors, such as:
– The rise of the gig economy, which offers more flexibility and opportunities for self-employment.
– The advancement of technology, which enables more people to work remotely and access online platforms and tools.
– The impact of the COVID-19 pandemic, which has disrupted many traditional businesses and forced some people to seek alternative sources of income.
However, the global demand for sole traders varies depending on the region, the industry, and the level of development. For example:
– In developed countries, such as the United States, the United Kingdom, and Australia, the demand for sole traders is high in sectors that require creativity, innovation, and specialized skills, such as IT, media, and professional services.
– In developing countries, such as India, China, and Nigeria, the demand for sole traders is high in sectors that provide basic needs and services, such as agriculture, trade, and transportation.
– In some regions, such as Africa and Latin America, the demand for sole traders is low due to the lack of infrastructure, regulation, and social protection.
The Benefits and Challenges of Being a Sole Trader
Being a sole trader has both advantages and disadvantages. Some of the benefits are:
– Having full autonomy and flexibility over the business decisions and operations.
– Keeping all the profits after paying taxes.
– Having lower costs and fewer formalities than other types of businesses.
Some of the challenges are:
– Having unlimited liability for all the debts and losses of the business.
– Having difficulty accessing finance, insurance, and legal support.
– Having limited resources and capacity to grow and compete.
Therefore, a sole trader should carefully weigh the pros and cons of this business model before starting or continuing their venture. A sole trader should also be aware of the changing market conditions and customer preferences, and adapt their strategies accordingly.
References:
https://www.ssm.com.my/sites/default/files/guidelines/OWNER%20RESPONSIBILITY_new.pdf
http://gst.customs.gov.my/en/SiteAssets/doc/Registering%20for%20GST%20Amend%201.pdf
https://www.sba.gov/sites/default/files/SDOLoanFactSheet_Oct_2011.pdf
https://www.worldbank.org/en/topic/employment/publication/sole-proprietors-around-the-world
https://www.investopedia.com/terms/s/soleproprietorship.asp
https://en.wikipedia.org/wiki/Sole_proprietorship
https://www.gov.uk/set-up-sole-trader
https://www.startupdonut.co.uk/start-up-business-ideas/types-of-business/sole-trader-or-limited-company
https://www.simplybusiness.co.uk/knowledge/articles/2017/08/how-to-become-a-sole-trader/
