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The Solo Route: Weighing the Advantages and Disadvantages of Being a Sole Trader

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If you’re thinking of starting your own sole trader business then you’ve  likely, and wisely, sought to find out what the advantages and disadvantages of sole trading are. 

It's super important to do this kind of research and get a clear grasp of exactly what registering and operating as a sole trader entails. As the road to vocational independence can be a rocky one. And there are some key considerations regarding tax, profitability/earning potential, legal issues, how it fits with your desired lifestyle and more.

Especially when you look at some significant stats on sole trading: 

If you want to succeed in sole tradership, and your one-person show to go on, then you need to know what you're signing-up for.

Luckily Crunch can bring you up-to-speed. Having helped thousands of people thrive on the path of self-employment over the last decade plus, there’s not much we can’t tell you about the reality of being a sole trader.

We’re well qualified to give you the full no frills low-down - the good, the bad and the practical - on the advantages and disadvantages of sole trading. And share 10+ years of expert knowledge and advice on what’s involved in going solo down in Acapulco. 

*For a detailed, yet clear, explanation of what a sole trader is, see our in-depth article here.

Why do people choose to become sole traders?

Before we directly examine and compare the specific advantages and disadvantages of becoming a sole trader, let’s quickly hear what a real person successfully running a sole trader business has to say about it.

When speaking to BBC Teach, Jake Travis, owner of legendary record shop Out On The Floor Records in Camden, said that he became a sole trader as he doesn’t like being told what to do or sticking to a time schedule,

‘’. . .you're your own boss, your own business, you come and go as you please, and you answer only to yourself’’.

Sound familiar? 

However, he said that the drawbacks include things like having to organise everything yourself, like advertising, marketing, buying and pricing stock, paying bills, and accounting (not if you use Crunch 😎).

As well as the pressure of not having a reliable, consistent income and the potential legal ramifications if your business goes bust.

‘’If people don’t walk through the door, you don’t earn money’’

So it sounds like with freedom comes great responsibility. Let’s look at an extensive list of the pros and cons of sole trading to try to get a view of the whole picture. So you ascertain whether or not the single-life in business is for you.

Advantages of Being a Sole Trader:

  1. Empowering autonomy and independence

Operating as a sole trader offers you complete command over your business. You're free to steer every aspect, from routine operations to big-picture strategies, without external input. This independence ensures your vision remains unaltered by boardroom discussions or shareholder opinions. Leading to faster, more efficient responses to client demands or market opportunities. If you’ve got an inspired idea you want to implement, there’s no one stopping you.

  1. Money’s all yours

Perhaps the biggest and most obvious plus of sole trading is that the profits you earn post-tax are entirely yours. As a sole trader, you don't need to distribute earnings among investors or anyone else. Allowing you to fully capitalise on your potential gains and maintain minimal expenses. Conversely however, opting for a partnership would require profit sharing within the business.

  1. Easy to get started

Launching as a sole trader is remarkably straightforward. It involves fewer bureaucratic hurdles compared to other business structures. This simplicity makes it an ideal choice for entrepreneurs eager to quickly turn their ideas into a functioning business. With minimal setup requirements, you can focus on the heart of your venture right from the start.

  1. Minimal Paperwork

One of the lesser-discussed yet significant perks of sole trading is the reduced paperwork. Unlike corporations or partnerships, sole traders face fewer regulatory filings and compliance checks. This not only saves time but also reduces administrative stress, allowing you to concentrate more on growing your business and less on navigating red tape.

  1. Keeps private business private

Operating as a sole trader also offers a unique, underrated advantage: the privacy of your business affairs. Unlike limited companies that are required to publicly disclose financial information, sole traders can maintain confidentiality over their business details. This aspect is particularly appealing for those who prefer to keep their financial matters discreet and personal.

Disadvantages of Being a Sole Trader:

  1. They won’t show you the money

Being a sole trader often means facing financial credibility challenges. Banks, financial institutions or investors may perceive you as having less stability and reputation compared to a limited company. This can lead to difficulties in securing loans or investments, impacting your ability to grow or sustain your business in times of need.

  1. Losing out legally  

Sole traders face 'Unlimited liability,' a significant legal drawback. If your business encounters financial trouble, personal assets like your home or car could be at risk to cover debts. This legal responsibility means higher stakes, as bankruptcy can extend beyond business losses to personal financial ruin.

  1. Your on your own

Sole trading can be a solitary journey. You're solely responsible for every decision, which can be overwhelming and lead to feelings of isolation. The absence of a support system or team to share responsibilities and ideas can increase stress and limit diverse perspectives, which are often crucial for a business's growth and innovation.

  1. No work, no pay

A stark reality of sole trading is the lack of paid leave. Absences due to holidays, illness, or other reasons directly impact your income. This absence of financial security during downtimes can be a significant disadvantage, particularly when compared to employees who enjoy paid leave benefits.

  1. Not much tax wiggle room

Sole traders are taxed similarly to individuals, which can be less advantageous than the tax conditions offered to limited companies. This means fewer opportunities for tax planning and savings, potentially leading to higher tax liabilities compared to other business structures that offer more flexibility in managing taxable income.

As you can see, overall the experience of being a sole trader is a balance of advantages and disadvantages. Ultimately it’s down to you to decide if you can make this form of self-employment work. 

And at the end of the day there’s only one way to truly tell if the benefits of sole trading outweigh the downsides, by being brave and taking the plunge.

It’s worth remembering that well under half of those who register as a sole trader stick with it long-term. Though this is for a variety of reasons , not all of which are negative. For example many sole trader businesses are so successful that they expand into a limited company. 

At Crunch we like to tell it straight, and we want you to be totally clued up on what can sometimes be the brutal reality of self-employment.  Just be prepared for some serious graft and you’ll be fine. If you’ve got the passion and desire for freedom then sole trading is definitely the right path for you. 

The No.1 problem with Sole Trader Accounting solved!

For too many sole traders financial administration is a never-ending chore that robs them of time and enthusiasm. 

Taking care of accounts and filing tax returns yourself is not fun, and often why talented and ambitious people throw in the towel on their small business dream.

But Not Anymore!

Introducing Crunch ONE, our game-changing new Sole Trader Accounting package. There’s no subscriptions and you only pay 1% of your income. It’s free until you get paid. 

The same award-winning Crunch software and support, with none of the risk of paying for lengthy plans if you can’t afford it.

Now anyone can get tax off their mind and focus on running their business again. Sign-up for free here, and let’s put your self-employment dreams in motion.

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James Waller
Content Specialist
Updated on
January 22, 2024

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