7 Disadvantages of Sole Proprietorship are listed and explained in this article. We hope you find it helpful for your research.
In our previous article on ‘advantages of sole proprietorship’, we looked intensively at some of the benefits of being a sole proprietor, and just as there is a flip side to every coin, there are disadvantages of sole proprietorship and in this article, we will be looking at the disadvantages of a sole proprietorship.
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Disadvantages of Sole Proprietorship
Below are seven Disadvantages of Sole proprietorship:
1. Problem of continuity
Unless there is a trained successor, sole proprietorship often lasts as long as the proprietor has life in him. Oftentimes, the moment the proprietor dies, the business often dies along with him, this is pretty bad as both employees and customers will have to continue with another fresh supplier or employer and this is not good for the economy.
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2. Inadequate capital
No single person has all the required capital needed to start and run a business effectively and as a result of this, the sole proprietor is always faced with inadequate or insufficient capital because of the small size of his business and his inability to source hands outside his business.
3. He bears all risks alone
Whenever the word ‘business’ is mentioned, the risk is always involved and as a sole proprietor, all the risk of the business is usually borne alone.
The risk required in operating the business, no matter the size or depth, is usually borne solely by the owner of the business. If the business is successful, he is glad but if it fails, he suffers all the loss all alone.
4. It has unlimited liability
Should a sole proprietorship business fold up, all the assets (both personal and that of the business) are usually sold to realize funds to settle the creditors since the business is sometimes run on debts.
5. It is not a separate legal entity
In law, there is no difference between the owner of a sole proprietorship and the business itself. The business cannot sue or be sued in its own right.
If there is any case arising from the business, the owner of the business usually takes it upon himself and if he needs to collect debts from anyone, he has to devise his own means to get the debts because the business is not a legal entity.
6. He lacks specialization
The business owner is usually personally involved in every section of the business to the last detail as such, he cannot be focused on one task per time, he works very hard and may not take public holidays, and sometimes, may not even have enough rest. In most cases, when he is not around the business premises, the business may close down temporarily until he is back to business.
7. There is a limitation in expansion
The sole proprietorship cannot expand the business as much as he wants because he cannot be everywhere at every time and this leads to stunted growth of the business because there is a great lack in the business both in ideas and business expansion as a result of insufficient capital.
Having analyzed some of the disadvantages of a sole proprietorship, you have the privilege of determining whether to push ahead as a sole proprietor or look at other forms of businesses that may suit you.