Advantages and Disadvantages of a Sole trader

Advantages and Disadvantages of a Sole trader

Advantages

The following are the advantages of a Sole trader.

i. Easy Formation

No legal formalities are required to initiate a sole trading concern. Any person capable of entering into a contract can start it, provided he has the necessary resources for it.

ii. Incentive to Work hard

There is a direct relationship between effort and reward. The fact that the entire profit can be taken by himself without sharing with anybody else induces him to work ceaselessly.

iii. Small Capital

Small capital is an important as well as specific advantage of sole proprietorship. Sole proprietor can start business with small capital.

iv. Credit Standing

Since his private properties are held liable for satisfying business debts, he can get more financial assistance from others.

v.  Personal Contact with the Customers

Since sole proprietor knows each and every customer individually he can supply goods according to their taste and preferences. Thus he can cultivate personal relationship with the customers.

vi. Flexibility

The sole trader can easily adjust himself to the changing requirements of his business.

Disadvantages

The following are the disadvantages of a Sole Trader.

i. Limited Capital

Since the capital is contributed by one individual only, business operations have necessarily to be on a limited scale.

ii. Limited Managerial Skill

Single person’s intelligence and experience may not help him beyond a certain stage. Since he has to focus on each and every activity, his managerial ability is bound to be limited.

iii. Unlimited Liability

The creditors have the right to recover their dues even from the personal property of the proprietor in case the business assets are not sufficient to pay their debts.

iv Lack of Specialisation

Since the business unit is small and the financial  resources  are  limited,   experts in different fields cannot be employed to secure maximum advantages.

v. Hasty Decisions

Sole proprietor is more likely to take hasty decision as he need not consult anybody else.