Disadvantages Of Sole Proprietorship

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Disadvantages of Sole Proprietorship

(i)    Limited Control. The financial resources which a sole trader can raise are limited. He can depends on his personal resources and his borrowing capacity. The borrowing capacity depends on his assets and credit worthiness. The limitation of financial resources may put hurdles in the expansions of the business.

(ii)    Limited Managerial Skills. All the managerial functions which are essential for the successful operation of a business are performed by the sole trader. Thus benefits of specialization are not available. Moreover, the individual may not be able to perform all the managerial functions effectively because of limitations of time, skills enemy and imagination. Because of limited scale of operations and financial resources, it may not be feasible to secure the services of experts in virus fields like production, purchasing and marketing.

(iii)    Unlimited Liability. The liability of the sole trader is unlimited in the sense that the business creditors can even recover their debts form the personal assets of the proprietor. The proprietor may be completely ruined in case of failure of his business. This factor puts a ceiling on the growth and expansion of the business.

(iv)    Uncertainty. There is wide uncertainty about the continuity of the business because the sole trader operates on a small scale and his activities are less diversified. The owner may be compelled to close his business in which he concentrates. Moreover, death and insanity of the proprietor also lead to closure of business. In short, business sinks and swims with the proprietor.

(v)    Limited Opportunities. Since the scale of operations is relatively small, the sole trader cannot avail the benefits of all business opportunities. Since there is one and the same person who provides capital and management, the sole trader may not be ready to take various risks which is essential for the growth of any business. Moreover, because of small scale operations, the trader is not able to reap the economies of large scale production, purchasing and marketing.

(vi)    Wrong Business Decisions. The chances of wrong decision making are quit-high in a sole trading concern. This is because of the fact that the sole trader takes all decisions of the business himself. He is not assisted by anyone while taking decisions. This may lead to wrong decisions. This will affect the prospects of the business. It is rightly said two heads are always better than one.

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