Following on from this weeks earlier post regarding your structure, today we are discussing the concept of “sole trader”.
A sole trader refers to an individual who runs a business operation. It is the individual who holds the Australian Business Number (ABN) and the operation may be performed in the individual’s own name, or a registered business name (ie: Joe Smith or Joe Smith trading as Joe’s Pie Shop).
The benefits of operating as a sole trader include:
- they are easy and cost effective to set up as there are no specific laws relating to the formation of a sole trader
- they are simple to wind up as there are few formalities other than paying your debts and notifying stakeholders and government departments
- the owner has freedom in decision making
- all profits belong to the owner
- sole traders are often known for having direct contact with clients and customers which creates a sense of personal service
Disadvantages of operating as a sole trader include:
- while the owner takes all profits of the business, they also bear the losses and there is no distinction between business and private assets in terms of liability
- operating as a sole trader may lead to limited management and technical expertise
- raising capital can be difficult, good planning and budgeting is important
- all profits are taxed in the name of the owner which may be ineffective depending on the level of income
If you’d like to discuss your sole trader business, please complete the Contact page.