Pros and Cons of Owning a Sole Proprietorship

A sole proprietorship is a highly popular business structure in the country because of its effortless establishment. It is the perfect entrepreneurial platform for individuals who do not have the funding to build an organization with employees. It is also ideal for those who want to sell their skills through a consulting or freelancing business. A sole proprietorship is like a one person army where the entrepreneur handles all the operations. The owner can take home all the income generated from the business and is responsible for all the losses and debts.

Sole proprietors own unincorporated businesses under their name or the Doing Business As (DBA) name. Using DBA requires completing specific paperwork per the Orlando, Florida obligations. Taxes for this type of business structure are paid as part of personal tax returns. Budding entrepreneurs planning to start a sole proprietorship must know the pros and cons of this structure. It can help them make the right choice for their entrepreneurial journeys.

Pros of Owning a Sole Proprietorship

The following benefits make several aspiring entrepreneurs choose sole proprietorship over limited liability companies (LLC), partnerships and corporations (S or C).

1. Simple and Easy Business

Starting a sole proprietorship in Florida is considered the easiest task because it does not need registration or other paperwork. The state government recognizes the business without any legal documents. The owner has to choose a name or use their legal name that should not violate the trademark of any other business. However, the sole proprietor will require professional licenses to operate legally. Individuals who purchase a business for sale in Orlando can get these permits and licenses transferred at the time of signing the purchase contract. These businesses do not need a formal office and can be started from home, which makes them simple to set up and operate.

2. Cost Effective Operations

Since sole proprietorships are easy to establish, the costs involved in starting one are much lower. If the owner does not hire employees, the overheads go further down. Consulting and freelancing businesses usually do not require much equipment, stock, or furniture. Thus, most sole proprietors have to invest a minimal amount to get started and operate successfully.

3. Tax Benefits and Comfort

Sole proprietors have it easy when it comes to paying business taxes. They are considered pass through entities which do not pay business taxes. The income generated from the venture is reported on their personal income tax return. In addition, Florida does not have a state personal income tax. Thus, entrepreneurs operating in Orlando have to pay only federal income tax on their profits. They can also claim applicable tax deductions to reduce their tax bills.

4. Complete Control and Ownership

Sole proprietors are in complete control of their entities. They do not have a board of members, stakeholders, or partners who interfere in operations and decision making. This allows them to work freely and use their creativity to innovate. They are responsible for the results and are not answerable to anyone.

5. Easy to Dissolve Business

Sole proprietors can easily dissolve their entities by paying off the debts and informing the IRS about the closure. They can also put up the Orlando business for sale to generate lucrative returns by selling the assets since there is no entity for sale. It is easier to sell assets and start a new phase in life without regrets.

Cons of Owning a Sole Proprietorship

Owning a sole proprietorship may seem like an easier way to own a business, but it can have its disadvantages. These include:

1. Burden of Responsibilities

Sole proprietors can find it challenging to handle the workload associated with administration, marketing, customer support, accounting and decision making. It can be difficult to work without input and suggestions from team members who can also be delegated work to manage time and enjoy work life balance. Managing the entire process singlehandedly can become stressful and lead to lags in deliveries and meeting timelines.

2. Risk of Personal Liability

It may seem beneficial that profits do not have to be distributed, but the downside of being a sole proprietor is accepting unlimited personal liability. It means that the owner is responsible for the payment of debts and losses incurred by the business. The personal assets of the owner are not protected and can be sold off to pay for the business debts. Thus, the owner faces the risk of losing residence, vehicle, savings and other assets if the business fails. Also, they can put up these businesses for sale in Orlando as an entity. They can only sell the assets because the legal entity is not separate from the owner.

3. Challenging to Secure Funds

Seed capital is essential for every business structure. Funding is also needed in later stages to grow and expand the venture. However, securing funds for a sole proprietorship can be challenging because of the high risk of failure associated with these entities. Since these are not separate legal entities, the income of the owner decides the financial stability of the business. Also, unlimited personal liability makes it risky for investors to put their money into a venture that relies on personal assets.

4. High Taxes and Low Growth Potential

Sole proprietors have to pay higher taxes because business income is taxed at the rate of personal income tax. The owner also has to pay self employment tax. If the sole proprietors hire employees, they have to pay employee taxes and if they own properties, they are liable to property taxes. In addition, claiming deductions can be difficult because of low overheads. Individuals seeking business opportunities in Orlando must understand that sole proprietors may not be able to expand like other businesses because of a lack of resources and funds. They can only operate as small businesses with this structure and may have to change it to grow. Changing the business structure involves legal and tax implications.

Wrapping Up

Most individuals prefer becoming sole proprietors because it gives them full authority and freedom to work on their terms. They can choose their work hours and make decisions without interference. However, this business structure has its share of disadvantages that must be kept in mind while pursuing the opportunity.