Disadvantages of Sole Proprietorship

What may be seen as an advantage by one person may turn out to be a disadvantage to another. The goals and talents of the individual owner are the deciding factors. For profitable businesses managed by capable owners, many of the following factors do not cause problems. On the other hand, proprietors starting out with little management experience and little money are likely to encounter many of the disadvantages.

  1. Unlimited Liability: The sole proprietor has unlimited liability in meeting the debts of the business. In other words, if the business cannot pay its creditors, the owner may be forced to use personal, non-business holdings such as a car or a home to pay off the debts. The more wealth an individual has, the greater is the advantage of unlimited liability.
  2. Limited Sources of Funds: Among the relatively few sources of money available to the sole proprietorship are a bank, friends, family, or his or her own funds. The owner’s personal financial condition, then, determines his or her credit standing. Often the only way a sole proprietor can borrow for business purposes is to pledge a car, a house, or other real estate, or other personal assets to guarantee the loan. And if the business fails, the owner may lose the personal assets as well as the business. Publically owned corporations, in contrast, can not only obtain funds from commercial banks but can sell stocks and bonds to the public to raise money. If a public company goes out of business, the owners do not lose personal assets.
  3. Limited Skills: The role proprietor must be able to perform many functions and possess skills in diverse fields such as management, marketing, finance, accounting, bookkeeping, and personnel. Although the owner can rely on specialized professionals to provide advice, he or she must make the final decision in each of these areas.
  4. Lack of Continuity: The life expectancy of a sole proprietorship is directly related to that of the owner and his or her ability to work. The serious illness of the owner could result in failure if competent help cannot be found.
  5. Lack of qualified Employees: It is usually difficult for a small sole proprietorship to match the wages and benefits offered by a large competing corporation because the proprietorship’s level of profits may not be as high. In addition, there is little room for advancement within a sole proprietorship, so the owner may have difficulty attracting and retaining qualified employees.
  6. Taxation: Although it is considered that taxation is an advantage for sole proprietorships, it can also be a disadvantage, depending on the proprietor’s income. Under current tax rates, sole proprietors pay a higher marginal tax rate than do small corporations. The tax often determines whether a sole proprietor chooses to incorporate his or her business.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Consumers of Advertising

It is vital, from the outset, to guard against the normal psychological tendency to impose your advertising “pattern” on a rather complex reality. Consider, for example, that the advertisements you may encounter through television, radio, the campus newspaper, magazines, direct mail, billboards, and the like are only a fraction of all the forms that advertising takes in other places in other times, for different purposes, and among different audiences. Yet, there is a tendency to equate that fragmented reality with the whole. Advertising is bad (good) for children; advertising is good (bad) for the economy; advertising helps us make wise (unwise) purchase decisions; advertising makes goods cost more (less); and so on. Simply, some advertising may be (or do) any of these things. All advertising is however far too complex to permit such over-simplifications.

By way of further example, one of the frequently voiced complaints of advertising critics is that advertising is not informative enough. Now, if we wish to point to some specific advertisements, it would not be difficult to accept such a premise. An advertisement for an expensive car may tell us that the car offers greater “class” than its competitors but nothing of its performance or life expectancy. Or a message for a cereal may feature a talking tiger, telling us of his adventures, but little of nutrition.

But there is other grist for this mill as well. A classified ad for a refrigerator may tell us its make, age, capacity, operating efficiency, and the reasons the seller has put it on the market. A message on drill bits for all rigs inundates its readers with performance data concerning the cost efficiencies to be accrued through the use of this bit compared with those of traditional composition. Do these ads also lack information?

To understand advertising then, you must first develop some knowledge of its more prominent functions. One way of getting a realistic picture of the landscape of advertising is to ask a simple question: Who uses advertising to reach what audiences through what media for what purpose? The pursuit of the answer not, of course, reveals all the nuances of advertising. It may, however, after a reasonable of some of the major species and subspecies and—not incidentally—serve to discourage embracing, “Advertising does …” thinking.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight