Page 132 - Business Principles and Management

Chapter 5 • Proprietorships and Partnerships

OWNER MAY LACK NECESSARY SKILLS AND ABILITIES Each person has special skills and
abilities. One person may excel at selling. Another person may be more talented
at purchasing goods or keeping records. A third person may be superior at
supervising employees. All of these activities are important to the success of
a business, but the proprietor is likely to be weak in one or more areas. No
one can do everything well. It is therefore easy to understand why some propri-
etorships end in failure within a short time.

OWNER MAY LACK FUNDS Additional funds (capital) are often needed for emergen-
cies. Financial assistance on a large scale may be difficult to obtain by a single
owner. Therefore the expansion of the business may be slowed because of the
owner’s lack of capital.

OWNER BEARS ALL LOSSES Sole proprietors assume a great deal of risk. Although sole
owners receive all the profits of the business, they also bear all the losses if the busi-
ness fails. If the business fails and the owner is unable to pay the debts of the busi-
ness, the creditors have a claim against the owner’s personal assets, not just the
assets of the business. The sole entrepreneur may therefore lose not only the money
invested in the enterprise but also personal possessions, such as a car or home.

ILLNESS OR DEATH MAY CLOSE THE BUSINESS The continuing operation of a sole pro-
prietorship depends on the longevity of the proprietor. If the owner becomes
unable to work because of illness or dies, the business would have to close.

CHECKPOINT
List the advantages and disadvantages of being a sole
proprietor.

Businesses Suited to Being Proprietorships

The kind of business that is primarily concerned with providing personal ser-
vices is well suited to the proprietorship form of organization. Dentists, accoun-
tants, landscape gardeners, carpenters, painters, barbers, beauty salons, Web site
developers, and computer consultants (experts) are examples of businesses fre-
quently organized as proprietorships.
Another type of business that seems to be well suited to proprietorship is
the type that sells merchandise or services on a small scale. Newspaper and
magazine stands, roadside markets, fast-food and family restaurants, flower
shops, gasoline stations, small grocery stores, fish markets, and many Web-
based businesses that sell crafts, gourmet foods, or grocery delivery services
are examples. In general, the type of business that can be operated suitably as
a proprietorship is one that (1) is small enough to be managed by the propri-
etor or a few people hired by the proprietor and (2) does not require a large
amount of capital.

PART-TIME PROPRIETORSHIPS

Not all proprietors run full-time businesses. Many people run part-time busi-
nesses out of an office or their home. The IRS found that more than 6 percent of

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