Merits and demerits of sole trading concern
Merits and demerits of sole trading concern
Merits
1)Ease in formation
There are minimum formalities in the formation of sole trading concern. Any person who is competent to enter into a contract can start a sole trading business.
2)Business secrecy
A sole trader can maintain complete business secrecy in his organization because he need not publish his accounts and other records, hence, his competitor does not get the business secrets.
3)complete control
All decision which are important are taken by sole trader himself. If there are some problems them hi can take necessary steps to solve it. Hence, the sole traders enjoy complete control over his business.
4)Close contact
Due to small size of business the sole trader have close contacts with customers and employees. Close contact with customers enables the sole traders to know the taste and preferences. Whereas, contact with employees results into better relations. Thus, it results into increase in profit.
5)Credit standing
Due to close contact and unlimited liability the sole trader enjoys better credit standing in the market. He is able to borrow sufficient funds for expansion of his business. Again, suppliers also provide better terms of credit.
6)convenience to customers
The sole trader offers a lot of convenience to his customers, by selling on credit basis to his regular customers. He may also provide free home delivery and may also advice the customers regarding the choice of goods.
7)Quick decision
It is possible for the sole traders to take quick because he need not consult others before taking any business decision. Such quick decision often brings quick results for the organization, which is very important for the success of the business.
8)flexibility in operation
A sole trader enjoys complete flexibility in business operation. So, he can expand the business, can change the line of business and can also close down the business if required.
9)Inexpensive management
The overhead cost of management in a sole trading concern is very less. This is because a sole trader himself manages and supervises the business operation.
10)Direct motivation
The sole trader gets directly motivated because there is direct relationship between efforts and reward. He takes personal interest in the business because of all the profits are enjoyed by him.
DIMERITS
1)limited capital
A sole trader is not in a position to supply all the capital required for expansion of his business because his financial resources are limited. Similarly, his borrowing capacity is also limited.
2)limited managerial skills
A sole trader has a limited managerial skill because there are definite limits to the skill and efficiency of an individual. Duty to limited managerial ability a sole trader may not be able to understand the complications of modern business.
3)lack of continuity
Lack of continuity is another serious problem of sole trading concern. This business comes to an end by the death or physical incapacity of the sole trader. There is not legal obligation on his successors the business.
4)limited span of supervision
A sole trader funds it difficult to supervise all activities of his business. A sole trader of a small store may be able to supervise and control all activities but that of departmental store may find is very difficult to supervise and control.
5)limited bargaining power
The bargaining power of sole trader in the market is very weak. This is because he purchases on a small scale and he may not have the skills of bargaining.
6)lack of specialisation
The sole trader is over burdened by a number of activities such as accounting, financing, supervising, correspondence, etc. Thus, there is lack of specialisation on the part of sole trader.
7)limited expansion
Due to financial and managerial limitation, this from of organization has limited scope for expansion. In the present market situation, the sole trader has limited scope for expansion.
8)unlimited liability
The liability of sole trader is unlimited. There is no distinction between business property and personal property. In case , the business property is not sufficient to pay the debts of the business then the personal property is used to pay the debts.
A sole trader has a limited managerial skill because there are definite limits to the skill and efficiency of an individual. Duty to limited managerial ability a sole trader may not be able to understand the complications of modern business.
3)lack of continuity
Lack of continuity is another serious problem of sole trading concern. This business comes to an end by the death or physical incapacity of the sole trader. There is not legal obligation on his successors the business.
4)limited span of supervision
A sole trader funds it difficult to supervise all activities of his business. A sole trader of a small store may be able to supervise and control all activities but that of departmental store may find is very difficult to supervise and control.
5)limited bargaining power
The bargaining power of sole trader in the market is very weak. This is because he purchases on a small scale and he may not have the skills of bargaining.
6)lack of specialisation
The sole trader is over burdened by a number of activities such as accounting, financing, supervising, correspondence, etc. Thus, there is lack of specialisation on the part of sole trader.
7)limited expansion
Due to financial and managerial limitation, this from of organization has limited scope for expansion. In the present market situation, the sole trader has limited scope for expansion.
8)unlimited liability
The liability of sole trader is unlimited. There is no distinction between business property and personal property. In case , the business property is not sufficient to pay the debts of the business then the personal property is used to pay the debts.
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