What are the Pros & Cons of Operating as a Sole Trader?
It’s a growing trend for people to aspire to work for themselves and be their own boss. In fact, in the UK today, around 4.6 million people have taken this path, hoping to find greater satisfaction and more flexibility in their working lives. So, how easy is taking the jump from working for an organisation to working for yourself?
There are two options for you if you are starting your own business venture. The simplest option is becoming a sole trader, and another is setting up a limited company. Both have their own advantages and drawbacks. To help you to decide which is best for you, read on for a cohesive list of the pros and cons.
What are the advantages of being a sole trader?
Low costs: Sole traders generally have a low start-up cost as only a small amount of capital is needed. Also, as sole traders usually have few or no employees, the wage bill is low.
Control: It’s easier for sole traders to retain full control of their business, and the proprietor can run the business without worrying about the interference of other businesses or individuals, leaving them to concentrate on their customers’ needs.
Less red tape and paperwork: Compared with limited companies, sole traders have much less paperwork to wade through and the whole set-up process is much simpler.
Privacy: A sole trader can keep his or her private information and business details private, whereas anyone who wishes to do so can inspect a limited company’s accounts.
You can change your mind: People making the leap from employment to self-employment often choose to become sole traders initially. Moving to becoming a limited company is always possible at a later date. However, going in the opposite direction is a little more difficult, with a more formal process involved in closing the company.
And the disadvantages?
Liability: By law, sole traders are not seen as separate entities from their businesses – therefore, they have unlimited liability. This means that the business’ debts and liabilities are yours, and you are liable.
Finances: Sole traders may find it difficult to raise funds for their business and may therefore struggle to grow their business. Banks tend to be unwilling to lend large sums to sole traders due to the lack of transparency and perceived risk.
Decision-making: With freedom comes responsibility. All the decisions are made by you as a sole trader, so the success or failure of your business depends on you alone.
Work-Life balance: As sole traders generally have no employees, it can be difficult for them to take sick pay or holiday pay, as they can risk losing business.
Business advice you can rely on from UWM
Are you starting your own business? UWM’s Business Start-Up service is the perfect support system for small start-ups with big ambitions. Get in touch with our team to find out more. Call 0113 231 0202 or complete an online enquiry form and a member of our team will be in touch very soon to discuss your requirements.