Although sole trading concern has several advantages, it suffers from some drawbacks such as unlimited liability, lack of skill and efficiency, small amount of capital, uncertainty, less chance of expansion etc.
The sole trader has unlimited liability. He is personally responsible for business debts. His private assets can be used to pay loans. The failure of business can ruin him financially. Therefore, the risk is high in sole trading concern.
Limited capital is the main demerit of sole trading concern. The personal resources of sole trader are limited. His borrowing capacity is also limited. Business expansion becomes difficult and good business opportunities may lost.
Sole trading concern is one man show. The owner may lack managerial skill and experience. He cannot be expert in all aspects of business. Limited skills provide disadvantage to sole trading concern.
Sole trading concern has uncertain life. The owner is the business in sole trading. Bad health or death of owner leads to end of business. There is no stability and continuity in sole trading concern.
Another disadvantage or demerit of sole trading concern is limited scope of business expansion. The capital and management are limited. Large scale operations are not possible.
Sole trading concern deals in limited lines of products. The areas of operations are small. The work is routine, boring and monotonous. The owner works hard to earn profit which may badly affect his family and social relations.
Long absence of owner from business can cause losses. There is nobody in charge to manage and control the business. Employees may not take interest in business. Chances of leakage and fraud are high in sole trading concern.
Some of the key disadvantages or demerits of sole trading concern can be described as follows:
1. Unlimited liability
The sole trader has unlimited liability. He is personally responsible for business debts. His private assets can be used to pay loans. The failure of business can ruin him financially. Therefore, the risk is high in sole trading concern.
2. Limited capital
Limited capital is the main demerit of sole trading concern. The personal resources of sole trader are limited. His borrowing capacity is also limited. Business expansion becomes difficult and good business opportunities may lost.
3. Limited skills
Sole trading concern is one man show. The owner may lack managerial skill and experience. He cannot be expert in all aspects of business. Limited skills provide disadvantage to sole trading concern.
4. Uncertain life
Sole trading concern has uncertain life. The owner is the business in sole trading. Bad health or death of owner leads to end of business. There is no stability and continuity in sole trading concern.
5. Limited expansion
Another disadvantage or demerit of sole trading concern is limited scope of business expansion. The capital and management are limited. Large scale operations are not possible.
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6. Monotonous work
Sole trading concern deals in limited lines of products. The areas of operations are small. The work is routine, boring and monotonous. The owner works hard to earn profit which may badly affect his family and social relations.
7. Loss in absence
Long absence of owner from business can cause losses. There is nobody in charge to manage and control the business. Employees may not take interest in business. Chances of leakage and fraud are high in sole trading concern.
