Some disadvantages are:
- You are personally liable for all your businesses debts. This liability is unlimited and should your business fail you could end up losing your personal assets such as your home, car, furniture etc.
- Credibility. While some businesses are suited to that of sole trader and customers like the idea of doing business with a person as opposed to a company, others do not. The travel business is one business where people need to be convinced that when they are paying their deposit and final holiday payments their money is being paid to a company and not an individual.
A sole trader is an ideal starting point for your business if you’re simply selling something at craft fairs, exhibitions, through your own website, etc. It is also suitable for offering services, for example wedding planner, personal organiser, florist etc.
Remember that the main advantage to being a sole trader is that you can easily change to another trading identity as your business grows. My first business was Paul Power trading as Paul Power Landscapes a sole trader but this business is now run as a partnership.
Another advantage to you as either a sole trader or partnership is that in the event you make a loss you can deduct your losses from future profits, provided these profits are made from the same business. You can also deduct losses from other income you have gained either in the year you sustained the loss, or the previous year, including any personal income you might have.
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