There are many business models in the business world among which is the sole proprietorship.
Sole proprietorship is a business entity where a single person is in charge of the day to day activities of his business.
Then in secondary school, we usually call this business model, “one-man business” because that`s what it is… a business of a single man/woman
There are other business models, partnership (where two or more people come together to be in the business together), limited liability (where the liability of the members is limited to the amount contributed as capital and unlimited liability company (where the liability of the members is not limited to the amount contributed to the business i.e. their liability could affect their other assets).
There are few other business models (e.g. public limited liability and private limited liability) depending on where you are and the name they are given.
In this tutorial, I will be sharing with you what single man business is, advantages and disadvantages.
Let`s get started!
One man business (sole proprietorship) is the simplest form of business anyone can start.
This is because it can be started by a single individual without any (or much) legal documents.
Many today`s successful entrepreneurs started as a single man in their businesses, so if you`re planning to start a business single handedly, you are not doing anything strange or odd.
Let`s check some of the:
Advantages of the sole proprietorship
- Sole proprietor have 100% control
No other business entity gives you all of the control like sole proprietorship.
If you`re in partnership your partner demands accountability. If you are in limited liability, board of directors gives you duty and expects you to do certain things, in some specified ways.
As a single owner of your business, you`re having 100% control.
Nobody tells you when to work or how to work. Nobody tells you what to do and what not to do.
If you`re someone who loves freedom, you may want to consider this business model.
- Sole proprietor takes all the profit
Since you`re the sole owner and no partner or board is involved in the business, you single handedly take all the profit.
Sometimes when you get a bright business idea and invite others to partner with you, the business end up in mighty success. Since your coming together is with some legal agreement, you have to share your profit with other people (even when it may seem as if they are not the originator of the idea).
As a sole proprietor, you enjoy your profit and success alone.
- Sole proprietor takes quick decision
Even if you`re the CEO of a public limited liability company, you may not wake up one morning and take a major decision, without consulting the board of directors or other persons in the organization.
As a sole proprietor, you can wake up at 6am and make a decision about your business.
- Sole proprietorship requires little legal document and registration
In fact, in some countries, you may not have to pass through any legal registration before you start a business as sole proprietor.
In cases where business registration is required, it`s usually very simple.
For instance in Nigeria, you can start a business as a single individual without any serious registration.
Some people simply join the trade association or something similar. However If you don`t want to do this, all you need is a simple business registration with the Corporate Affairs Commission (CAC).
CAC will register the name of your business with a token amount.
- Sole proprietor has no need for financial statement
Other business models demand high level of accountability because the other party is evolve. You may be required to give accurate financial statement of the day to day business activities, even if you`re the CEO.
As a sole proprietor, you`re accountable to nobody.
Yes, it`s very important to keep financial records, even as one-man business owner, but you see, some of us simply hate records.
I try hard to keep financial and non-financial records for my business, but not always. I am not just meticulous enough to keep every detail.
Soon, a partner will join me to take care of this my weakness.
Ok. Now to the;
Disadvantages of sole proprietorship
- Limited expansion
Anybody could know how start a business on his own, but to expand and grow, it becomes the work of a team.
You rarely can become a successful entrepreneur as a single man in the business world. Business is a game of team. Just as I explain above, you may lack one major business skill (in my own case patience to keep records). This single skill may cost you some businesses and growth.
Get me right, you can start business as a single person (in fact, that may be the best way to start) but as you`re growing, you will need the help of a partner or two, one employee or two and the more your business grow, the more people will be needed to keep you moving.
- Sole proprietors carry the liability alone.
Sometimes in the business world, we fall and fail. To stand up is easier if we are two or more.
For instance, one of us could have a source of loan we can take advantage of. One of us could have some savings we can quickly use to recover. And even when nor of us have anything as such, we could both encourage each other and struggle to rise up together.
I think Bible is right when it says, ‘Two are better than one”.
- People respect corporation than individual
Naturally, people tend to respect your business if it sounds like there is a team behind it.
When you look around the internet for instance, you will see many blogs with individual names. When we wanted to start this website, I should have called it StephenAfolabi.com, but how will that sound? How many people will respect such name compare to the Africa Business Classroom?
Since most one-man business adopt the owner`s name for the business, this stands as a disadvantage in the business world because people don`t usually respect lone rangers.
- Sole proprietorship business is not a separate entity from the owner
In a normal business setting, the owners are different from the business.
For instance, if you have any issue with Dangote Cement, you may sue Dangote Cement into the law court and not Aliko Dangote (the owner).
Dangote and his companies are seen as separate entity in the eye of the law. This is not so in one-man business.
You and your business are the same.
The debt your business acquires is on your neck. The lawsuits against your business is yours and just any other thing that concerns your business concerns you.
- What if you`re Sick?
Since sole proprietors are single individuals, when they get sick their businesses also gets sick. This may not happen in the case of partnership or other forms of business.
Sole proprietorship as a business entity is usually a perfect option for anyone just starting out in the business world.
Yes, I listed some of its disadvantages but none of them is actually breath-taking as you can manage yourself through all of them till you have roots and become a successful business owner.
I wish you best of luck!