Sole proprietorships are unincorporated businesses with only one owner. This type of business entity is often touted as the easiest and least expensive business structure. In some respects, this is true when compared to corporations, limited liability companies, and partnerships. However, sole proprietors take on some risks at greater levels than other business owners. In this article, we will look at some of the factors that complicate things.
Lack of Support Structure
As a one-person show, a sole proprietor often does it all. Typically, they have few if any employees to take on some of the burdens of running a business. Unlike partnerships, there’s no one to share the heavy lifting.
Lack of business support can also lead to another problem: burnout. After a difficult time, sole proprietors may find they no longer have the strength to continue. In some cases, selling the business could be difficult because the sole proprietor is the sole driving force.
There’s No Safety Net for Sole Proprietorships
Many sole proprietors have one source of income – their business. If the business fails, they may not have anyone to provide financial support until they get back on their feet. This has been particularly hard because the government shuttered many sole proprietorships during the height of the COVID-19 public health emergency.
Being Personally Liable
People who own some businesses are protected from personal liability. In other words, if the company gets sued, the business owner’s assets are safe. Not so for sole proprietorships. Successful plaintiffs could take a sole proprietor’s personal property to satisfy any judgments against them.
Raising Capital Can Be More Difficult for Sole Proprietorships
Approaching lenders as a sole proprietor can be challenging. Skittish lenders may be reluctant to lend money to a business owner who does not have partners or co-owners to back them up. Banks and potential investors generally want to see a proven track record and realistic projections.
Staying on Top of Accounting and Taxes
It’s especially challenging to handle these tasks when you are singlehandedly running the rest of the business. Sole proprietors often have trouble withholding and submitting estimated income taxes. Since they are also the ‘Accounting Departments,’ there is no one else to hold them accountable.
Sole Proprietorships Are Only One Type of Business Entity
Discuss your situation with a business lawyer. Flying solo might work for you, but it’s prudent to consider all your options.
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.