Sole Traders

Question 1

What is a Sole Trader?

Answer 1

An independent business where a single owner has all responsibility for the decision making.
They can have employees but they do not have the responsibility to make decisions.

Question 2

What are the advantages of being a sole trader?

Answer 2

• Have nobody to tell you what to do (decision making power).
• Choose your own working hours (flexibility).
• Get all profit.
• Customers feel you are offering a personal service as you see the same employees as it is only a small business, so you build relationships with customers, gaining tips and customer loyalty.
• Easy to set up.
• Small capital investment means reduced start up costs.

Question 3

What are the disadvantages of being a sole trader?

Answer 3

• Lots of work to do.
• Custom may be difficult to come by.
• Unlimited liability - money comes out from sole trader when in debt, may have to shut down.
• If ill, you cannot open business, lose sales, affecting profit levels and if you are even able to run the business.
• Long hours.
• Responsibility - the buck stops with you.

Question 4

What is unlimited liability?

Answer 4

Where the owners of the business are seen as the same legal identity, therefore if the business has a debt then this is also the owners’ debt. In extreme cases the owners personal assets (house, car, TV, etc) can be taken to settle the debt.

Question 5

What do Sole Traders not have to do that partnerships do?

Answer 5

They do not have to fill out forms and documents for the government body.
They pay personal tax for HMRC.