Why to Expand your Sole Proprietorship?
“As goes human nature, we cannot desist from doing new experiments and exploring new avenues. ”
The limitations of sole proprietorship have necessitated the development of other forms of organizations. On the contrary, wide spread use of other forms of organizations has not eliminated the worth of sole proprietorship. Rather, it continues to be the most popular form of organization in almost every continent.
Since only one person invests his funds in sole proprietorship, he tries to keep his business only to that scale which can remain in his personnel command. The liability of sole trader is unlimited so he refrains from doing anything, which may be risky.
When a business is expanded, risk is bound to be there. As a result a sole trader is hesitant in increasing the scale of operations of his business. However, as goes human nature, we cannot desist from doing new experiments and exploring new avenues.
The same thing applies to a sole trader when he tries to expand his business to that level where it may become difficult to handle individually. It may be attributed to the desire of more profit or simply to the satisfaction of one’s ego. Nevertheless, such a tendency has a good effect on the economy as a whole.
In order to do so, there are two alternatives before him. Firstly, he can add a partner. Then his sole proprietorship becomes a partnership. The new partner brings in his resources and experiences, which can help in the expansion of his business. Additional funds can also be raised through loans but this is usually a temporary source.
The employment of a servant is the other alternative in an expanding sole proprietorship. One person cannot supervise each and everything. The owner needs the help of other persons for controlling and managing the business properly.
In such a setup, a manager shares some of the burden of sole proprietor. The assistant is paid salary and the profit belongs to the owner. If a partner is added, he is to have a share in the profit too. It is better to get the help of a paid employee instead of taking in a partner.
Author - DeeKay
Tags - Finance, Economy
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