Starting your own business requires a lot of thought about what form it’ll take. Most small businesses, the kind our Start Your Own Business course prepares you for, are formed as sole traders or partnerships. What you have to decide is, if you want to be solely responsible for the business or if you want to share the burden? So, this week and next I’ll detail the main pros and cons of being both – it should help you decide.
Sole Trader
Being a sole trader has its benefits:
• you keep all the profits if your business does well
• you make all the important decisions about your business meaning you can be flexible in your approach, adapting, as and when needed, to a changing environment. This enables you to make new products and services available quickly and easily – there are no drawn out discussions over decisions to contend with.
Being a sole trader also has some pretty big drawbacks too:
• if the business suffers losses you will be held personally responsible for them. You could end up losing your house and possessions and being made bankrupt to pay off any debts you have to creditors – so that is definitely something to think about.
• you are not only held responsible for the business but all your employees too, if you have any. So if, for instance, your employee gives someone food poisoning it will be you who’s sued – not your employee. You will have to take out insurance to cover these circumstances.
• if you are ill and cannot work you have to have provision in place to support yourself whilst there’s no money coming in. Of course, this does not apply in all instances – if you own a shop you are likely to have at least one other employee so your shop can still open even if you are not there. However, if you are a mobile masseuse, there’ll be no-one to do the jobs for you if you fall ill. So, you will have to make sure you have enough money set aside to cover these eventualities.
• the same goes for holidays. You will have to make provision for people you trust to run your business whilst you are away or have a financial safety net in place to cover your holiday periods.
Next week I’ll detail the pros and cons of partnerships so you can make a decision about which form best suits your business and you.
