Page 48 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 1 Understanding business activity

The main advantages of a sole trader are:
KEY TERM
■ It’s quick and easy to set up a business.
Start-up capital: the finance
needed when first setting up ■ The sole trader makes all of the decisions so has complete control over the
a business. business.

■ The business can often be set up with a small amount of start-up capital. For
example, someone setting up a window cleaning business may only need to buy a
ladder, bucket, detergent and cloths.
■ The owner keeps all the profit.

Many of the advantages above explain why sole traders are the most common form
of business organisation found in countries throughout the world. Sole trader
businesses are common in industries such as retailing, catering and construction.
In some countries many owners involved in agriculture are also sole trader
businesses.
Despite its popularity, being a sole trader has several disadvantages.

■ The owner has unlimited liability for the debts of the business and risks losing their
personal wealth to pay for these.

■ It is oft en difficult to raise funds to expand the business.

■ As small businesses, it is difficult to compete with larger firms in the same industry.
A sole trader ■ Owners often lack some of the essential business skills needed for running

a business, such as financial management. This is one of the main reasons for the
failure of sole trader businesses.
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Why some businesses ■ Sole traders often have to work very long hours to make a living from their
fail: see Chapter 3, page 40. business.
■ If a sole trader retires or dies the business no longer exists.

Figure 4.2 Advantages and disadvantages of being a sole trader