SOLE TRADER

This is usually called the one-man business. It is a business organization financed and run by an individual. He may employ one or more persons to assist in the daily operations, but he is the sole owner of the business. Some sole trade businesses are registered as business ventures or with the names of the owners. Examples are Gifrafem Business Ventures; Anu and Sons enterprises; Okeke and Son, Abu plumbing works and so on. Some may not be registered with the Corporate Affairs Commission and this could be a limitation when dealing with third parties because they have no corporate identity.

ADVANTAGES

Ease of commencement and termination: Commencing a sole trade business is easy comparatively. No much capital is required. The owner can start small and grow by ploughing back profit or borrowing money to take advantage of opportunities. A wise sole trader could convert it to a limited liability company or partner with others to become a partnership. Just as it is easy to commence, it is also easy to terminate. It does not require much documentation or processes to terminate a sole business. The death of the owner could terminate the business.

Tax advantage: Sole trade enjoys tax advantage because it does not need to make returns to internal revenue departments of governments. It is compulsory for companies to pay various taxes to government monthly and yearly. Sole traders do not pay such taxes. The owner usually does tax assessment on his income as an individual and pay what is called poll tax which every adult is expected to pay. The sole trade may also pay little levies to the local government councils, but the burden cannot be compared to companies. Other statutory liabilities such as subscription to Industrial training fund (ITF), National social insurance trust fund (NSITF), Pension contributions to PENCOM accredited pension provider and so on, are not paid by sole traders except where they employ up to five employees and this is rare. They often call their employees apprentices.

Sense of responsibility: The sole trader knows that his dedication and passion for his business could result in success or failure. This motivates him to put in his best always. He is early at work and closes late (not conscious of time). He sees the business as part of him and its success is equally his. There is always the zeal to outshine others in the same trade. A sole trader is always devising means to improve his business and he takes responsibility for his success or failure.

Decision Making: The sole trader takes decisions alone and quickly too. He takes advantage of opportunities without consultation. A sole trader does not conduct management meetings to appraise the business and brainstorm on the next line of action. He does everything himself banking on experience gathered in the business.

Easy to Organize: The easiest form of business to organize is sole trade. The business has no structures, hierarchies, organograms, line of reporting. The sole trader sees his business as personal. He is the accountant, general manager, marketer and salesman. Business is not burdened with too many overhead costs like monthly salaries and allowances, heavy electricity bills and service charges. It is easier to organize due to its size and scale of operations.

Shares Profit alone: The sole trader owns his business solely. He is the owner of whatever profit he makes in the course of his business. Just as he bears the good and not too good business situations alone, he does not share his profit with anyone. He decides what to do with it and wise ones plough back their profit to improve their businesses.   

Personal relationship with staff: Some sole traders employs assistants to help in running their business. They know these employees to their roots. The have a personal relationship with most of their employees. They feel their pains and often get involved in solving their problems especially where such employees are very dedicated to duty. The employees are also very closely related to each other because they are few. This is often impossible in companies with hundreds or thousands of employees who may not even know themselves. Management of such large companies are very impersonal with staff matters. Everything is strictly official in such organizations.

Secrecy: The sole trader owns his business secret. He does not have to publish his books of account or disclose it to any third party or the public. Companies, on the other hand, must publish their statement of affairs and profit and loss statements by law. Any company that fails to do so will be penalized by the relevant government agencies. Sole traders may, however, show his bank statement if he wants to obtain a loan from banks or financial houses.

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DISADVANTAGES

Limited Capital for expansion: The sole trader does not have enough capital compared to companies to expand his operations. His capital could be from savings from previous employment, gifts from relatives or inheritances. His ploughed back profit and bank loans could be his other sources of funds, but these may not be much. On the other hand, companies can raise better loans, sell shares in stock exchanges or issue debentures to fund their expansion.

Uncertainty of Continuity: There is no guarantee of continuity in sole trade business. Most times, when the owner dies, the business dies also. This is very true of businesses that require the expertise of the owners. Where none of the children or relations is trained to continue in the absence of the owner, it dies with him or her. Moreover, a sole trader that could not manage his business well could go into insolvency and eventual bankruptcy thus terminating the business. They also do not have good succession plans to guarantee continuity.

Lack of Managerial Skill: Most Sole tradersare not skilled or educated in managerial sciences. They also do not have the resources to employ qualified personnel or management consultants to manage their businesses. They are everything as far as manpower is concerned. Most of them are semi-literate or illiterates. It has been discovered over time that many sole business owners do not accept the advice of Management Consultants if they manage to have one.

Limited opportunity for employees: There is no hope for career advancement in a sole trade business. There are hardly promotions or holidays. There are no prospects of training, obtaining official loans for housing or car loan. Employees can be sacked at any time without gratuity or pension. Even those with long service do not have pensions and when the business closes, everybody becomes jobless. As a matter of fact, the mood of the owner determines the happiness or otherwise of the employees. There is so much inconsistencies in the polity.

Unlimited Liability: Sole trade do not enjoy limited liability. This means that there is no difference between the business and the owner. The debts of the business is the owners debts also. In a limited liability company, the owners (shareholders) liability is limited to their capital. The business is an artificial body that can sue and be sued in its own name. The debts or liabilities of these companies is in their corporate name and the management would be held responsible not the owners. The sole trader could sell his personal property to pay the debts of his business if the need arises.

Poor decisions: Decisions made by the sole trader are usually not well thought out. They are taken at the spur of the moment. Decisions like this are usually faulty because they are not subjected to the rigors of good decisions making process. There is a saying that two heads are better than one. There is no room for criticism or evaluation before action. Therefore, most sole trade businesses fold up easily due to poor decision making about the market, prices, competition, strategy and so on. Other forms of business organizations do better in decision making because many people are involved.

It is obvious from above that sole trade has a lot of advantages, but it also has its drawbacks. Let us examine other forms of business organizations in the next chapter.