For many, setting up as a sole trader is the best way to start up a new business. When compared against setting up as a limited company, it may seem like an easier and more convenient option. However like all important decisions in life, it’s best to weigh up the good against the bad before making that important leap. Below, we’ve weighed up the pros and cons you’ll need to consider before making any decision.
- More control for you
As a sole trader, you’re your own boss, you steer the ship unaided. There’s no need to consult directors or shareholders or compromise your own vision for the company. You can make decisions and act on those decisions quickly, providing for the needs of their customers with minimum delay.
- You keep the profit
Sole traders retain all profits, rather than have to share them across the business. Many sole traders often choose not to employ anyone, which obviously helps keep costs down and maximises profits available to them.
- It’s easier to change your mind
Many people dipping their toe into the unchartered waters of running a business, will choose to do so as a sole trader, waiting until they have more confidence in the business before deciding whether a limited company might work better for them. When you start out as a sole trader, you can always choose to form a limited company for the business later down the line.
(Related: Want to succeed as a sole trader? Use our free business plan template to clarify your business ideas, identify potential problems and measure your progress. Download your free business plan template now.)
Sole traders are not seen as a separate entity by the law and therefore, are subject to unlimited liability. In simple terms this means that if the business gets into debt, the business owner is liable. If your business was to nosedive with debts to be paid, you’ll lose not just your income but you’ll also have to pay the money owed from your assets.
2.Access to finance
Sole traders often find it difficult to raise finance to fund their business. Banks are usually unwilling to lend money to sole traders and when they sometimes do, the amount can be some way short of what you’ll receive if you trade as a limited company.
All decisions are made by the sole trader which means that the success or failure of the business rests on the shoulders of one person. Being a sole trader doesn’t stop you from having employees but ultimately all the important decisions will fall on you and there’s no one to share accountability with.
So, in summary, if you’re considering the best way to set up your business, be sure to do your research to discover both the advantages and the common pitfalls. Doing so will save you a lot of hassle and stress in the long run. Good luck in your new venture!
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Ready to take the next step? If you’re growing from a sole trader to a small business, you’ll find plenty of key information in our free guide. Click to download now.