It is common to see the majority of small businesses first start out as sole proprietorships – mostly because the startup costs and formalities are lower. Yet these business structures often later merge into partnerships or co-operations due to reasons such as shared responsibility or chances to increase profits or goals. Part-time business owners often start out this way too, especially if they have a regular occupation.
Are You Just Starting Out?
As mentioned above, small starter businesses find it easier to set-up a sole proprietorship. Of course finding the right kind of business partner can help you create a partnership easily, than taking a risk being the sole owner. Starter businesses will generally have issues at the initial stage that you will have to deal with – but the profits will go to one person and you can change the business structure easily when necessary.
Consider The Pros and Cons
While starter costs are lower, the tax return is the same as an individual tax – which might be a hindrance for a starter business that is only starting to make profits. While the business owner retains full control and privacy, the liability and risk is higher for sole business owners. Business dealings will need to be carefully when starting out, with lower financial risks. It can also be hard to raise capital for a sole proprietorship when compared with a partnership or a limited liability. This can affect expansion unless the owner had enough capital to start with.
Taxes, Profits and Insurance
While sole traders can hire employees for a business the owner is not considered as an employee and will not have to pay payroll tax – they will also have their individual tax file number for sole trader tax. All profit goes to the sole owner, and liability includes personal assets and joint assets that are shared with another person too. It is also advisable to look into insurance plans that are suitable, as you will not be covered by worker’s compensation if you are injured while on duty.
Be Aware Of Liability
It is common for failed business ventures to end up losing their assets when there are unpaid debts to suppliers, expenses etc. This issue can even arise in businesses where the operational risk is high. So making wise business decisions without taking unnecessary financial risks during the initial stage is quite important – this includes having a solid business plan to calculate the profit and losses that will be faced. Starting a business is always a risk, but making the right decisions can go a long way.