The 10 advantages of sole proprietorship business inform why it is preferred among business people.
10 Advantages of Sole Proprietorship
1. Flexible
When starting a sole proprietorship business, there is no need for lots of paperwork. Switching from selling one type of physical product or service to another is relatively easy. The business owner can change what they sell depending on the seasonality of goods or services. If the demand for a particular product is on the rise, say camping gear, during holidays, the sole trader can pause selling their usual swim wears and stock more camping gear.
Switching costs are also relatively low. The sole trader does not necessarily set up a new shop. Instead, they use the existing shop and switch to a different inventory.
In addition, the setup is quick and easy compared to partnership and corporation. The ease of setting up majorly matters in case of a need to change location.
2. The owner is the sole decision-maker
A sole trader makes decisions over profits, investments, and allocation of resources. There is no need for consultation, saving time and other related resources. The owner can decide when to open their businesses and determine the time of closing their store.
There is much freedom for sole traders to enjoy. It is now always good to have this much freedom because it could be a source of laxity. However, it is this freedom that makes the process of decision-making unbelievably fast. The sole trader only needs to do soul searching and decide as soon as they think it’s appropriate.
3. Easy to start and close down
There are no formal ways to enter and start a sole proprietorship business. As soon as the investors see a market gap and a viable opportunity, they start operating their shop. Setting up shops requires following only a few legal steps and starting operations to fill the market gap.
If the sole business owner realizes that the business is not making profits, exist is as easy. Formulating the exit plan and reporting to authorities on the intention to exit from a sole proprietorship business is unnecessary. The business owner can exit as soon as they figure out the future will not be any brighter. The ease of exit cushions owners from suffering more costs in closing down.
The shutdown cost is significantly low because there are no legal fees to settle, no remuneration to partners and investors, and no money to be spent on announcing business closure and other related closing costs.
4. No need for the employer identification number
The fact that a sole proprietor is not employed saves him from many troubles employed individuals face. When operating as a sole trader, there is no need to spend lots of time and money to obtain an employer identification number.
The employer identification number is not applicable universally across the world. It is thus a benefit for sole proprietors who operate in such states where the number is required.
5. Low fees and costs
Starting a sole proprietorship requires a small amount of capital from personal savings and loans or donations from family and friends. In the case of some states or jurisdictions with some form of legal process, the fee is often low.
The low starting capital and legal fee make sole proprietors more attractive to aggressive business people. They know prevailing risks and are ready to start again if their plan fails them.
6. Alleviates unemployment
This kind of establishment alleviates unemployment in two ways:
One is the alleviation of unemployment for the sole trader. When business owners record profits, they cease being financially dependent on others. They can actively contribute to the growth of the economy.
Two, the sole trader might sometimes employ a few individuals. These are employed not on merit but on their availability and confidence to do certain job roles. Individuals who secure jobs in sole proprietorship form of business further contribute to the reduced employment rate.
7. Meets local demand for local perishable goods
Sole proprietorship businesses often operate close to where the final consumer lives or works. This close range makes it easy for final consumers to access perishable products before they go bad.
It is an advantage to consumers because they can buy such perishable products while still in their good state. A sole proprietorship business is advantageous even to producers of such perishable products. With the help of sole proprietorship, they can get their goods to the market as soon as they are ready from the production zone.
8. Freedom of personalization and customization
The thing with a sole proprietorship is that they deal with their clients at an individual level. They utilize individualized instead of mass targeting, as would be for a monopoly company. By dealing with their clients individually, there is ample room for the personalization of the products or services.
Take, for instance, a sole trader who makes tents. Clients have the freedom to personalize their tent based on materials to use, selection of colors, and size, among others. Sole trader bridges the gap of unavailable personalization when customers are mass targeted by sellers of certain goods and services.
9. Requires modest managerial skills
Being a sole trader is all about leveraging what one knows. One does not have to worry about the unknown. As a sole owner of a business, one can leverage their knowledge and make things work out well for their business.
A sole trader does not need to worry about macroeconomic factors like GDP, international trade, etc. Instead, they only need to work within the scope of microeconomic factors that are easy to understand. With modest skills in interpreting customer demand and market supply, they can run their businesses successfully through strategic inventory stocking.
10. Serves convenience
Starting a sole proprietorship depends on the sole trader’s preference for convenience. The sole trader can decide when it is convenient for them to operate their store, what products or services to sell conveniently, and how their sole proprietorship business conveniences their financial needs, among others.
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