Starting a business is a frightening process. One has to carefully come up with a cost-effective but efficient business strategy, a broad customer base, and a full proof plan to manage short and long-term finances. Besides, legal work, complicated registration processes, and tax fillings add fuel to the fire.
To avoid these frustrations, sole proprietorship comes in handy. This business structure is not only simple but also profitable.
You might be interested to know its endless advantages. If yes, this article discusses the 10 major advantages of a sole proprietorship that you should know.
1. Easy to Establish, Low Startup Cost
Setting up a sole proprietor business is a piece of cake. Unlike other forms of business, there are no to lesser legal requirements for it to register with the state.
Besides, there is no need for any formal action for its name, opening a bank account, and defining the structure to follow. It involves less paperwork and simple documentation. Even the requirement of a license to operate varies from industry to industry.
In the future, if the sole proprietor decides to expand, do a partnership, or terminate the business, he can easily do it without complying with complicated legal requirements. No registration, license, and legal fee make this type of business inexpensive to start.
2. Low Operating Costs
Sole proprietor business works on a small scale with the simplest yet dynamic structure. It neither has to pay additional regulatory costs nor maintenance.
Moreover, the cost of holding inventory, advertising expenses, travel expenses, shipping expenses, accounting fees, and other administration costs which constitute a large portion of variable costs become insignificant in this type of business and save a lot of money.
A sole proprietor usually operates its business with the help of relatives or friends and sometimes has few employees. Hence, cutting down on salaries, wages, health care, incentives or bonuses becomes easy.
3. Tax Advantages
Sole proprietors are lucky to avoid double taxation- firstly taxed at the income of the business and then on a personal level. The laws consider the sole proprietor and his business a single unit and the owner does not need to pay taxes for his business and income separately.
They do not have to pay 21% corporate tax on profits and also are exempt from excise, federal, state, or franchise taxes. This keeps the tax filling procedures simple and easy. Sole proprietors just have to fill IRS form 1040 like usual personal tax and they are good to go!
4. Exemption from Annual Reports
The international accounting boards and other regulatory authorities require businesses to maintain annual reports mainly based on the true picture of their revenue, expenses, production, dividends, and taxes every year.
However, this rule does not apply to sole proprietors. In addition, they are saved from fillings for audits, tax returns, modification in the list of members, and change of manager. Exemption from fillings not only saves a lot of time but also money for the business.
5. No Formal Business Structure
Formal business structures set limits for operations and force everyone to meet certain requirements. But the case of the sole proprietors is different. They are not bound to anyone or anything.
Its simple business structure lets set owners free on their own choices. Managing operations becomes way more flexible.
They are their own bosses! In addition, relief from annual meetings, board meetings, formal reviews, and recorded minutes are time-effective, cost-efficient, and give owners more room to think independently.
6. Quick Decisions
Sole proprietors have complete control over their business. They are the ones who make a decision, take responsibility and control their outcomes. They do not have to discuss everything with others or take approvals before making any move.
They do not have to attend long meetings, debating or disagreeing to decide on a solution to a complicated problem.
They quickly analyze the situation and take appropriate actions. In case, a sole proprietor takes a wrong decision, he is the only one to bear the loss and cannot blame anyone else.
7. Profits- The Biggest Perk
It is a fact everyone starts a business to maximize its wealth and profits are the biggest perks of the sole proprietorship.
Usually, the businesses have to share their profits with shareholders in the form of dividends and other monetary, non-monetary perks. However, in the case of a sole proprietorship, the owner only pays capital and keeps all the money.
This business does not have any partners or shareholders hence does not have to share the profits with anyone. Keeping all the profits becomes the motivation for the owner.
8. Easy Tracking & Handling
The bigger the business is, the more complex it will be; the more complex it is, it requires loads of paperwork and tracking becomes an uphill task.
Other forms of businesses have to document each and everything because they segregate personal and business finances.
However, the sole proprietors have limited liability, their business and personal finances are the same.
They usually own a single account where they deposit their incomes and pay their expenses as well. Hence, tracking what comes in and goes out is a lot easier. There is no need for a formal payroll setup.
9. Show Creativity
Sole proprietor business gives an opportunity to show the world your knowledge, expertise, skills, and creativity. The owner has a chance to play with innovation and ideas to compete in the market.
He can take advantage of his brilliance and bring his colorful dreams into reality. Everything an owner does has a personal touch of uniqueness, sincerity, and reality.
10. Secrecy & Confidentiality
No doubt, keeping information confidential in a business is crucial for its success. However, the authorities require businesses to publish their financial information for the inspection of the public.
It means anyone from anywhere can easily see what is going on in the business and predict future strategies as well.
Unlike other forms of businesses, the sole proprietors are the only authority and do not have to share the confidential information of their business with anyone which not only helps to compete for aggressively in the market but also grab a significant share.