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They are usually small in size. Hairdressers, butchers, and electricians often operate as sole traders.

Sole traders rely on their own savings, bank loans or loans from friends and family to finance their business.

Advantages

Sole traders keep all the profit they make for themselves. They also get to run the business as they see fit, making all the key decisions by themselves.

Starting up as a sole trader is legally the easiest of all types of ownership. It has less rules and regulations than other types of organisations.

Disadvantages

Sole traders take on all the risks of starting their own business and have the disadvantage of unlimited liability. A sole trader is liable for the organisation’s debt. This means that personal assets such as a car or house are at risk of being sold to pay off business debts.

Sole traders tend to work long hours. This is because they have to shoulder the full burden of responsibility for their business. To keep labour costs to a minimum they will often avoid delegating tasks such as purchasing or advertising to others, preferring to save money by doing the work themselves.

Sole traders can only raise limited finance. They will receive money from family and friends or use their own savings. They might get a bank loan but only if the bank is convinced that the sole trader’s business plan will work.