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Trading Business Plan Template

Written by Dave Lavinsky

trading business plan

Trading Business Plan

Over the past 20+ years, we have helped over 500 entrepreneurs and business owners create business plans to start and grow their trading companies.

If you’re unfamiliar with creating a trading business plan, you may think creating one will be a time-consuming and frustrating process. For most entrepreneurs it is, but for you, it won’t be since we’re here to help. We have the experience, resources, and knowledge to help you create a great plan.

In this article, you will learn some background information on why business planning is important. Then, you will learn how to write a trading business plan step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What Is a Business Plan?

A business plan provides a snapshot of your trading company as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan

If you’re looking to start a trading company or grow your existing company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your trading business to improve your chances of success. Your business plan is a living document that should be updated annually as your company grows and changes.

Sources of Funding for Trading Companies

With regards to funding, the main sources of funding for a trading company are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for trading companies.

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How to write a business plan for a trading company.

If you want to start a trading business or expand your current one, you need a business plan. The guide below details the necessary information for how to write each essential component of your trading business plan.

Executive Summary

Your executive summary provides an introduction to your trading business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your executive summary is to quickly engage the reader. Explain to them the kind of trading company you are running and the status. For example, are you a startup, do you have a trading business that you would like to grow, or are you operating a chain of trading companies?

Next, provide an overview of each of the subsequent sections of your plan.

  • Give a brief overview of the trading industry.
  • Discuss the type of trading business you are operating.
  • Detail your direct competitors. Give an overview of your target customers.
  • Provide a snapshot of your marketing strategy. Identify the key members of your team.
  • Offer an overview of your financial plan.

Company Overview

In your company overview, you will detail what type of trading business you are operating.

For example, you might specialize in one of the following types of trading businesses:

  • Retail trading business: This type of business sells merchandise directly to consumers.
  • Wholesale trading business: This type of business sells merchandise to other businesses.
  • General merchandise trading business: This type of business sells a wide variety of products.
  • Specialized trading business: This type of business sells one specific type of product.

In addition to explaining the type of trading business you will operate, the company overview needs to provide background on the business.

Include answers to questions such as:

  • When and why did you start the business?
  • What milestones have you achieved to date? Milestones could include the number of customers served, the number of products sold, and reaching $X amount in revenue, etc.
  • Your legal business Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry or market analysis, you need to provide an overview of the trading industry.

While this may seem unnecessary, it serves multiple purposes.

First, researching the trading industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.

The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section:

  • How big is the trading industry (in dollars)?
  • Is the market declining or increasing?
  • Who are the key competitors in the market?
  • Who are the key suppliers in the market?
  • What trends are affecting the industry?
  • What is the industry’s growth forecast over the next 5 – 10 years?
  • What is the relevant market size? That is, how big is the potential target market for your trading business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: individuals, schools, families, and corporations.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of trading business you operate. Clearly, individuals would respond to different marketing promotions than corporations, for example.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, including a discussion of the ages, genders, locations, and income levels of the potential customers you seek to serve.

Psychographic profiles explain the wants and needs of your target customers. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.

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Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other trading businesses.

Indirect competitors are other options that customers have to purchase from that aren’t directly competing with your product or service. This includes other types of retailers or wholesalers, re-sellers, and dropshippers. You need to mention such competition as well.

For each such competitor, provide an overview of their business and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as

  • What types of customers do they serve?
  • What type of trading business are they?
  • What is their pricing (premium, low, etc.)?
  • What are they good at?
  • What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

  • Will you make it easier for customers to acquire your product or service?
  • Will you offer products or services that your competition doesn’t?
  • Will you provide better customer service?
  • Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.  

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a trading company, your marketing strategy should include the following:

Product : In the product section, you should reiterate the type of trading company that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you sell jewelry, clothing, or household goods?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your plan, you are presenting the products and/or services you offer and their prices.

Place : Place refers to the site of your trading company. Document where your company is situated and mention how the site will impact your success. For example, is your trading business located in a busy retail district, a business district, a standalone facility, or purely online? Discuss how your site might be the ideal location for your customers.

Promotions : The final part of your trading marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:

  • Advertise in local papers, radio stations and/or magazines
  • Reach out to websites
  • Distribute flyers
  • Engage in email marketing
  • Advertise on social media platforms
  • Improve the SEO (search engine optimization) on your website for targeted keywords

Operations Plan

While the earlier sections of your plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your trading business, including answering calls, scheduling shipments, ordering inventory, and collecting payments, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to acquire your Xth customer, or when you hope to reach $X in revenue. It could also be when you expect to expand your trading business to a new city.  

Management Team

To demonstrate your trading business’ potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally, you and/or your team members have direct experience in managing trading businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act as mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing a trading business.  

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.  

Income Statement

An income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenue and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you charge per item or per pound and will you offer discounts for bulk orders? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.  

Balance Sheets

Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your trading business, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.  

Cash Flow Statement

Your cash flow statement will help determine how much money you need to start or grow your business, and ensure you never run out of money. What most entrepreneurs and traders don’t realize is that you can turn a profit but run out of money and go bankrupt.

When creating your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a trading business:

  • Cost of equipment and supplies
  • Payroll or salaries paid to staff
  • Business insurance
  • Other start-up expenses (if you’re a new business) like legal expenses, permits, computer software, and equipment

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your facility location lease or a list of your suppliers.  

Writing a business plan for your trading business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will understand the trading industry, your competition, and your customers. You will develop a marketing strategy and will understand what it takes to launch and grow a successful trading business.  

Trading Business Plan Template FAQs

What is the easiest way to complete my trading business plan.

Growthink's Ultimate Business Plan Template allows you to quickly and easily write your trading business plan.

How Do You Start a Trading Business?

Starting a trading business is easy with these 14 steps:

  • Choose the Name for Your Trading Business
  • Create Your Trading Business Plan (use a trading business plan template or a forex trading plan template)
  • Choose the Legal Structure for Your Trading Business
  • Secure Startup Funding for Trading Business (If Needed)
  • Secure a Location for Your Business
  • Register Your Trading Business with the IRS
  • Open a Business Bank Account
  • Get a Business Credit Card
  • Get the Required Business Licenses and Permits
  • Get Business Insurance for Your Trading Business
  • Buy or Lease the Right Trading Business Equipment
  • Develop Your Trading Business Marketing Materials
  • Purchase and Setup the Software Needed to Run Your Trading Business
  • Open for Business

What is a Trading Business?

There are several types of trading businesses:

  • Retail trading business- sells merchandise directly to consumers
  • Wholesale trading business- sells merchandise to other businesses
  • General merchandise trading business- sells a wide variety of products
  • Specialized trading business- sells one specific type of product

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Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.   Click here to see how Growthink’s business plan advisors can give you a winning business plan.

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Trading Business Plan

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Starting a trading business can be challenging because you have to build contacts, negotiate, and whatnot. But amidst worrying about all these things, planning is the last thing you want to worry about.

While anyone can start a new business, you need a detailed business plan when it comes to raising funding, applying for loans, and scaling it like a pro!

Need help writing a business plan for your trading business? You’re at the right place. Our trading business plan template will help you get started.

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Free Business Plan Template

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How to Write A Trading Business Plan?

Writing a trading business plan is a crucial step toward the success of your business. Here are the key steps to consider when writing a business plan:

1. Executive Summary

An executive summary is the first section planned to offer an overview of the entire business plan. However, it is written after the entire business plan is ready and summarizes each section of your plan.

Here are a few key components to include in your executive summary:

Introduce your Business:

Start your executive summary by briefly introducing your business to your readers.

Market Opportunity:

Mention your product range:.

Highlight the product range of your trading business you offer your clients. The USPs and differentiators you offer are always a plus.

Marketing & Sales Strategies:

Financial highlights:, call to action:.

Ensure your executive summary is clear, concise, easy to understand, and jargon-free.

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2. Business Overview

The business overview section of your business plan offers detailed information about your company. The details you add will depend on how important they are to your business. Yet, business name, location, business history, and future goals are some of the foundational elements you must consider adding to this section:

Business Description:

Describe your business in this section by providing all the basic information:

Describe what kind of trading company you run and the name of it. You may specialize in one of the following trading businesses:

  • Retail trading
  • Wholesale trading
  • Export-import
  • Dropshipping
  • Describe the legal structure of your trading company, whether it is a sole proprietorship, LLC, partnership, or others.
  • Explain where your business is located and why you selected the place.

Mission Statement:

Business history:.

If you’re an established trading business, briefly describe your business history, like—when it was founded, how it evolved over time, etc.

Future Goals

This section should provide a thorough understanding of your business, its history, and its future plans. Keep this section engaging, precise, and to the point.

3. Market Analysis

The market analysis section of your business plan should offer a thorough understanding of the industry with the target market, competitors, and growth opportunities. You should include the following components in this section.

Target market:

Start this section by describing your target market. Define your ideal customer and explain what types of services they prefer. Creating a buyer persona will help you easily define your target market to your readers.

Market size and growth potential:

Describe your market size and growth potential and whether you will target a niche or a much broader market.

Competitive Analysis:

Market trends:.

Analyze emerging trends in the industry, such as technology disruptions, changes in customer behavior or preferences, etc. Explain how your business will cope with all the trends.

Regulatory Environment:

Here are a few tips for writing the market analysis section of your trading business plan:

  • Conduct market research, industry reports, and surveys to gather data.
  • Provide specific and detailed information whenever possible.
  • Illustrate your points with charts and graphs.
  • Write your business plan keeping your target audience in mind.

4. Products And Services

The product and services section should describe the specific services and products that will be offered to customers. To write this section should include the following:

Describe your products:

Mention the trading products your business will offer. This may include product categories, product range, product features, product sourcing, etc.

Describe each service:

Mention the trading services your business will offer. This may include:

  • Logistics & shipping
  • Warehousing & storage
  • Distribution & fulfillment

Additional Services

In short, this section of your trading plan must be informative, precise, and client-focused. By providing a clear and compelling description of your offerings, you can help potential investors and readers understand the value of your business.

5. Sales And Marketing Strategies

Writing the sales and marketing strategies section means a list of strategies you will use to attract and retain your clients. Here are some key elements to include in your sales & marketing plan:

Unique Selling Proposition (USP):

Define your business’s USPs depending on the market you serve, the equipment you use, and the unique services you provide. Identifying USPs will help you plan your marketing strategies.

Pricing Strategy:

Marketing strategies:, sales strategies:, customer retention:.

Overall, this section of your trading business plan should focus on customer acquisition and retention.

Have a specific, realistic, and data-driven approach while planning sales and marketing strategies for your trading business, and be prepared to adapt or make strategic changes in your strategies based on feedback and results.

6. Operations Plan

The operations plan section of your business plan should outline the processes and procedures involved in your business operations, such as staffing requirements and operational processes. Here are a few components to add to your operations plan:

Staffing & Training:

Operational process:, equipment & machinery:.

Include the list of equipment and machinery required for trading, such as office equipment, warehouse equipment, transportation vehicles, packaging & testing equipment, etc.

Adding these components to your operations plan will help you lay out your business operations, which will eventually help you manage your business effectively.

7. Management Team

The management team section provides an overview of your trading business’s management team. This section should provide a detailed description of each manager’s experience and qualifications, as well as their responsibilities and roles.

Founders/CEO:

Key managers:.

Introduce your management and key members of your team, and explain their roles and responsibilities.

Organizational structure:

Compensation plan:, advisors/consultants:.

Mentioning advisors or consultants in your business plans adds credibility to your business idea.

This section should describe the key personnel for your trading business, highlighting how you have the perfect team to succeed.

8. Financial Plan

Your financial plan section should provide a summary of your business’s financial projections for the first few years. Here are some key elements to include in your financial plan:

Profit & loss statement:

Cash flow statement:, balance sheet:, break-even point:.

Determine and mention your business’s break-even point—the point at which your business costs and revenue will be equal.

Financing Needs:

Be realistic with your financial projections, and make sure you offer relevant information and evidence to support your estimates.

9. Appendix

The appendix section of your plan should include any additional information supporting your business plan’s main content, such as market research, legal documentation, financial statements, and other relevant information.

  • Add a table of contents for the appendix section to help readers easily find specific information or sections.
  • In addition to your financial statements, provide additional financial documents like tax returns, a list of assets within the business, credit history, and more. These statements must be the latest and offer financial projections for at least the first three or five years of business operations.
  • Provide data derived from market research, including stats about the industry, user demographics, and industry trends.
  • Include any legal documents such as permits, licenses, and contracts.
  • Include any additional documentation related to your business plan, such as product brochures, marketing materials, operational procedures, etc.

Use clear headings and labels for each section of the appendix so that readers can easily find the necessary information.

Remember, the appendix section of your trading business plan should only include relevant and important information supporting your plan’s main content.

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This sample trading business plan will provide an idea for writing a successful trading plan, including all the essential components of your business.

After this, if you still need clarification about writing an investment-ready business plan to impress your audience, download our trading business plan pdf .

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Frequently asked questions, why do you need a trading business plan.

A business plan is an essential tool for anyone looking to start or run a successful trading business. It helps to get clarity in your business, secures funding, and identifies potential challenges while starting and growing your business.

Overall, a well-written plan can help you make informed decisions, which can contribute to the long-term success of your trading company.

How to get funding for your trading business?

There are several ways to get funding for your trading business, but self-funding is one of the most efficient and speedy funding options. Other options for funding are:

  • Bank loan – You may apply for a loan in government or private banks.
  • Small Business Administration (SBA) loan – SBA loans and schemes are available at affordable interest rates, so check the eligibility criteria before applying for it.
  • Crowdfunding – The process of supporting a project or business by getting a lot of people to invest in your business, usually online.
  • Angel investors – Getting funds from angel investors is one of the most sought startup options.

Apart from all these options, there are small business grants available, check for the same in your location and you can apply for it.

Where to find business plan writers for your trading business?

There are many business plan writers available, but no one knows your business and ideas better than you, so we recommend you write your trading business plan and outline your vision as you have in your mind.

What is the easiest way to write your trading business plan?

A lot of research is necessary for writing a business plan, but you can write your plan most efficiently with the help of any trading business plan example and edit it as per your need. You can also quickly finish your plan in just a few hours or less with the help of our business plan software .

About the Author

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Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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How to Write a Business Plan for a Sole Proprietorship

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A business plan for a sole proprietorship is just like any other business plan. The main difference in business plans, in general, is the purpose. If you are writing a plan to organize your existing small company, focus on how your company operates and your goals for the future. If you will use it to obtain funding, your focus should be how you will make profits by supplying a commercial need.

Research Your Market

Start your research by describing your target or best customers by gender, age, income level, buying habits and residential location. Then look at your competition. Compare your company to your competition in terms of product offerings, service, prices, marketing, brand image and profitability. This gives you information for establishing the future direction you want your company to take, goals for expansion, product lines, service improvements, marketing to increase market share and ways to increase profitability. If you are a startup business, researching your market helps you develop your business idea, initiate good practices from the start and position your launch to attract the attention of your target market. It also gives you an argument that your company can fill a niche that will result in profits, which is important if you are going after funding.

Sole Proprietorship

There are special problems faced by a sole proprietorship operated by one person. The biggest problem is that you can't do everything. While examining your market, look for outside services that are geared to helping you compete with larger companies. These might be telephone answering services and business center offices that supply office space, office machines, administrative services and conference rooms. The Internet can provide inexpensive, simple-to-use marketing services and other outsourced services to expand your business reach. These are important considerations for the operations section of your business plan.

Develop Your Idea

Use your market research to solidify your vision for your company. Write a one or two sentence mission statement that addresses what you do, for whom, when, where, why and how. Then build on that. Establish in detail how the company operates, your suppliers, sales agents, cost of goods, price points, marketing strategy and growth plans. The more detailed you express this vision, the more likely you will see holes in your plan, which is one of the benefits of writing a business plan; it enables you to solve problems before you encounter them.

Research Your Costs

Make a list of every expense you encounter including rent, employees, travel, legal services, business licensing, insurance, inventory, sales costs, marketing costs and delivery costs. Business plan software is a good source of spreadsheet programs that allow you to plug in these costs to see what kind of revenues you must generate for profitability. These programs also print out a good presentation of your financial projections for use in obtaining funding.

Write the Plan

Your business plan should be shorter than 50 pages and should include the following sections: executive summary, which is written last; description of industry, including how you fit in; business model, describing your products and services; target market, describing who will buy from you and why; marketing model, describing how you will reach your target market; revenue model, estimating revenues and discussing how you will achieve those estimates; management, listing the bios and skills your managers bring to the company as well as your outside advisory board; and your financial projections, which consist of spreadsheets including a profit and loss statement, sales projections, personnel projections, cash flow and balance sheet. Include a discussion of how you arrived at these financial projections and the assumptions you used.

  • SBA.gov: How to Write a Business Plan
  • Entrepreneur: An Introduction to Business Plans

Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.

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How Quick Decision is Possible in Sole Trading?

draft a business plan for sole trading concern

Sole trading, characterized by single ownership, is a business model that stands out for its simplicity and direct accountability. This comprehensive exploration aims to dissect the nuances of sole trading, emphasizing how it enables swift decision-making, alongside discussing its features, advantages, disadvantages, and overall impact on business dynamics.

Features of Sole Trading Concern

  • Single Ownership: The sole trader is the exclusive owner, bringing necessary capital and resources.
  • Individual Capital: Capital is raised personally, often limited to personal savings and loans from acquaintances.
  • Unification of Ownership and Management: The sole trader has total control, enabling swift action and decision-making.
  • Unlimited Liability: Personal and business finances are intertwined, implying personal risk in business losses.
  • Freedom from Government Regulation: Minimal legal formalities, except for certain regulated businesses.

Advantages of Sole Trading Concern

  • Easy and Quick Formation: Simple setup process with minimal legal requirements.
  • Constant Personal Contact: Direct interaction with customers and employees, fostering loyalty and personalization.
  • Quick Decisions and Actions: Sole authority leads to rapid decision-making, crucial for certain business types.
  • Adaptability: Flexibility to change business aspects quickly without legal constraints.

Disadvantages of Sole Trading Concern

  • Limited Capital: Financial constraints due to reliance on personal funds and limited borrowing capacity.
  • Limited Managerial Capability: Sole management may lead to oversight limitations and reduced business efficiency.
  • Doubtful Continuity: Business stability is tied to the life and capacity of the owner.
  • Unlimited Liability: Personal assets are at risk in case of business failures.

How Quick Decision-Making is Facilitated in Sole Trading

The structure of sole trading inherently supports rapid decision-making. This is primarily due to the unification of ownership and management, where the sole trader has the ultimate authority over all business decisions. This section delves into the mechanisms that enable this agility.

  • Autonomy in Decision-Making: The sole trader’s ability to make decisions independently, without the need for consensus or approval from partners or a board, streamlines the decision process.
  • Immediate Response to Market Changes: Sole traders can quickly adapt to market trends and customer needs, offering a competitive edge in dynamic business environments.
  • Personal Stake and Motivation: The direct impact of decisions on the trader’s personal finances fosters a heightened sense of responsibility and urgency in decision-making.

Strategies for Effective Decision-Making in Sole Trading

While the sole trading model facilitates quick decisions, the quality of these decisions is crucial. Here are strategies to enhance decision-making effectiveness:

  • Continuous Market Research: Staying informed about market trends and customer preferences helps in making informed decisions.
  • Building a Strong Network: Establishing connections with other business owners, mentors, and industry experts can provide valuable insights and advice.
  • Leveraging Technology: Utilizing digital tools and software for business management can streamline operations and provide data-driven insights for better decisions.

Pros and Cons of Sole Trading Concern

Case studies: success and challenges in sole trading.

Examining real-life examples of sole traders can provide valuable insights into how quick decision-making impacts business success and the challenges faced. This section presents a few case studies illustrating these aspects.

In conclusion, sole trading offers a streamlined path for quick decision-making, thanks to its structure of single ownership and management. While it presents challenges like limited capital and managerial constraints, its flexibility and ease of operation make it an attractive option for many entrepreneurs. The key is balancing the inherent risks with the potential for rapid, personalized business growth.

1. What makes decision-making faster in sole trading

Single ownership and control enable quick decisions without the need for consultation or approval from others.

2. What are the main risks of sole trading?

The primary risks include unlimited liability, limited capital, and the uncertainty of business continuity.

3. Can a sole trader employ others to help in the business?

Yes, a sole trader can hire employees, but the ultimate responsibility and decision-making power remain with the trader.

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What Is a Sole Proprietorship?

  • How It Works
  • Pros and Cons
  • How to Create One
  • S.P. vs. LLC vs. Partnership
  • Transition to LLC

The Bottom Line

  • Small Business

Investopedia / Theresa Chiechi

Sole Proprietorship: What It Is, Pros and Cons, and Differences From an LLC

draft a business plan for sole trading concern

A sole proprietorship is an unincorporated business that has just one owner with no separation between the business and the owner. The owner receives all profits but is also liable for all debts and losses.

The owner of a sole proprietorship pays personal income tax on profits earned from the business. Many sole proprietors do business under their own names because creating a separate business or trade name isn’t necessary.

Also referred to as a sole trader or a proprietorship, a sole proprietorship is the easiest type of business to establish or take apart, due to a lack of government regulation. As such, they are very popular among sole owners of businesses, individual self-contractors, and consultants. Most small businesses start as sole proprietorships and either stay that way or expand and transition to a limited liability entity or corporation .

Key Takeaways

  • A sole proprietorship is an unincorporated business with only one owner who pays personal income tax on profits earned.
  • Sole proprietorships are easy to establish and dismantle due to a lack of government involvement, making them popular with small business owners and contractors.
  • Most small businesses start as sole proprietorships and end up transitioning to a limited liability entity or corporation as the company grows.
  • One of the main disadvantages of sole proprietorships is that they do not have any government protection, as they are not registered. This means that all liabilities extend from the business to the owner.
  • Sole proprietors report their income and expenses on their personal tax returns and pay income and self-employment taxes on their profits.

Understanding Sole Proprietorships

If you want to start a one-owner business, the simplest and fastest way is through a sole proprietorship. A sole proprietorship begins when you begin conducting business. It doesn’t require filing federal or state forms and has few regulatory burdens, making it an ideal way for self-employed people to start out.

A sole proprietorship is very different from a corporation, a limited liability company (LLC) , or a limited liability partnership (LLP) , in that no separate legal entity is created. As a result, the business owner of a sole proprietorship is not exempt from liabilities incurred by the entity.

For example, the debts of the sole proprietorship are also the debts of the owner. However, the profits of the sole proprietorship are also the profits of the owner, as all profits flow directly to the business owner.

Sabrina Jiang © Investopedia 2020

Advantages and Disadvantages of a Sole Proprietorship

The main benefits of a sole proprietorship are the pass-through tax advantage, the ease of creation, and the low fees for creation and maintenance.

  • The tax benefits. Income generated from a pass-through business is only subject to a single layer of income tax and, in some cases, may be eligible for a 20% tax deduction. Along with slashing the corporate tax rate, the Tax Cuts and Jobs Act (TCJA) of 2017 added a tax break for pass-through entities that essentially allows them to deduct up to 20% of qualified business income. That deduction can result in huge savings and runs until Jan. 1, 2026—unless extended by Congress.
  • With a sole proprietorship, you do not need to fill out a tremendous amount of paperwork, such as registering with your state. You may need to obtain a license or permit, depending on your state and type of business. But less paperwork allows you to get your business off the ground faster.
  • The tax process is simpler because you do not need to obtain an employer identification number (EIN) from the Internal Revenue Service (IRS). You can obtain an EIN if you choose to, but you can also use your own Social Security number (SSN) to pay taxes rather than needing an EIN.
  • With a sole proprietorship, you also don’t need a business checking account, as other business structures are required to have. You can simply conduct all your finances through your personal account.

33.3 million

The number of small businesses in the United States in 2023. Together, these businesses employed 61.6 million people across the country.

Disadvantages

There are some disadvantages of sole proprietorships, which can be impactful to the business owner. When a business is registered, it has some legal protections. A sole proprietorship provides no liability protection to the owner. By contrast, an LLC separates business and personal assets. The owner has protection against creditors seizing their personal assets, such as their home.

This unlimited liability goes beyond the business entity to the owners themselves. It can be difficult to get capital funding, specifically through established channels. Standard funding avenues include the ability to issue company equity and obtain bank loans or lines of credit. Banks prefer to work with companies that have a track record and generally view those who are starting out with a small balance sheet as high-risk borrowers. Obtaining funding from large investors can also be difficult.

Less paperwork

No need to obtain an EIN from the IRS

Quick and easy setup compared with other business structures

Low fees and costs

Pass-through tax advantage

Easier banking

Unlimited liability goes from business to owner

Difficulty in raising capital

How to Create a Sole Proprietorship

It isn't very difficult to start a sole proprietorship. That's because there aren't the usual legal hurdles that you have to overcome with other types of business organizations . In most cases, starting the entity is as easy as establishing yourself as the owner and starting up. Depending on where you live, there are certain steps you can take to formally launch your sole proprietorship.

  • Get your business license and any permits you may need. Some states require that you apply for licenses (business or occupancy) as well as permits. Check with your state or county clerk to see if you need any special paperwork to begin your business.
  • You may need to register your business under its Doing Business As name if your state requires it. If this isn't the case, you can operate under an assumed name, which can usually just be your own. Keep in mind that there are legal ramifications if you choose to run your sole proprietorship under your name.
  • Apply for and obtain an EIN. This is an important and necessary step if you're going to have any employees or file tax returns. If this doesn't apply to you, you're able to use your own SSN. Either way, it's always a good idea to check with a tax advisor so you don't make any mistakes.

If you plan to hire employees, you will need an EIN from the IRS. If you are going to sell taxable products, you will need to register for a sales tax license with your state.

Sole Proprietorship vs. LLC vs. Partnership

As noted above, there are certain distinctions between a sole proprietorship, a limited liability company, and a partnership. The chart below highlights some of the key differences between the three.

Transition From Sole Proprietor to LLC

When a sole proprietor seeks to incorporate a business, the owner usually restructures it into an LLC. For this to work, the owner must first determine that the name of the company is available. If the desired name is free, articles of organization must be filed with the state office where the business will be based.

After the paperwork is filed, the business owner must create an LLC operating agreement, which specifies the business structure. Finally, the new company must obtain an EIN—similar to an SSN, but for businesses—from the IRS.

A sole proprietorship has no separation between the business entity and its owner, setting it apart from corporations and limited partnerships.

Sole Proprietorship Tax Forms

Sole proprietors report their income and expenses on their personal tax returns and pay income and self-employment taxes on their profits. The tax forms you may need to file could include the following:

Example of a Sole Proprietorship

Most small businesses start as sole proprietorships and evolve into different legal structures as time passes and the company grows.

For example, Kate Schade started her company, Kate’s Real Food, as a sole proprietor. The company creates and sells energy bars and began as a local vendor in Jackson Hole, Wyoming. The sole proprietorship currently has a production facility in Bedford, Pennsylvania, and can be found in more than 4,000 retailers.

Since launching in 2005, Kate’s Real Food has grown to supply accounts across the country. In response, Schade restructured the business from a sole proprietorship to a corporation to take on investments and expand, a natural step for a growing business.

How Do You Start a Sole Proprietorship?

To start a sole proprietorship, you generally have to launch your business. It is useful to choose a company name. Depending on your business and local regulations, you may need to apply for a permit or license with your city, county, or state. If you plan to hire employees, you will need an employee identification number from the IRS. If you are going to sell taxable products, you will need to register with your state for a sales tax license.

Is Being a Sole Proprietorship the Same As Being Self-Employed?

Yes, being a sole proprietor is the same as being self-employed. A sole proprietor does not work for any company or boss, so they are self-employed.

How Do You File Taxes As a Sole Proprietor?

Filing taxes as a sole proprietor requires you to fill out the standard tax Form 1040 for individual taxes and Schedule C, which reports the profits and losses of your business. The amount of taxes you owe will be based on the combined income of both Form 1040 and Schedule C. If you have employees, there will be other forms to fill out.

Should I Form a Limited Liability Company or a Sole Proprietorship?

That depends on your business. A sole proprietorship is best suited to small businesses with low risk and low profits. Generally, these businesses don’t have a wide range of customers but rather a small, dedicated group. Sole proprietorships often start as hobbies that grow into a business.

The reasons to start a limited liability company (LLC) are the opposite of the reasons above. The business entails some liability risks , has the potential for large profits and a large customer base, and is positioned to benefit from certain tax structures.

How Do You Convert a Sole Proprietorship to an LLC?

Converting a sole proprietorship to an LLC requires you to file articles of organization with your state secretary. Also, you will have to refile your DBA (or Doing Business As) to keep your company name. Lastly, you will need to obtain an EIN from the IRS.

A sole proprietorship is a straightforward way for an individual to start a business. It does not require registering with a state authority for most situations and does not require obtaining an EIN from the IRS.

The benefits of simplicity are accompanied by some drawbacks, including all liabilities being passed through from the business to the individual and funding being harder to come by. Those risks shouldn’t pose much of an issue initially. However, as the business grows, it may make sense to transition into a different legal structure.

Internal Revenue Service. “ Topic No. 407 Business Income .”

Internal Revenue Service. “ Qualified Business Income Deduction .”

Internal Revenue Service. “ Form SS-4 & Employer Identification Number (EIN) 1 .”

U.S. Small Business Administration Office of Advocacy. “ 2023 Small Business Profile ,” Page 1

Internal Revenue Service. “ Do You Need a New EIN? ”

Kate’s Real Food. “ About Us .”

Jackson Hole News & Guide. “ Tram Good: Local Product Goes National .”

Internal Revenue Service. “ Sole Proprietorships .”

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  • A Comprehensive Guide to Establishing Business Credit 15 of 25
  • Equity Financing: What It Is, How It Works, Pros and Cons 16 of 25
  • Best Startup Business Loans 17 of 25
  • Sole Proprietorship: What It Is, Pros and Cons, and Differences From an LLC 18 of 25
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Trading Plan Template & Examples: Step-by-Step Guide to Creating a Solid Trading Plan

Stock Trading Plan

Bonus Material:

Trading plans are an important part of any trader’s toolkit. The problem is, most traders don’t actively lay out a plan before they begin trading.

The result? They lose money and wonder why . Furthermore, many traders don’t know how to create a trading plan , or what to include.

Successful traders understand that trading plans are crucial to profiting consistently. In this article, I’ll walk you through creating your own plan, step-by-step, plus you can get a head start by using my free trading plan template, download below :

What is a trading plan?

A trading plan is an integral part of a trader’s strategy, outlining how trades are executed. It establishes rules for buying and selling securities, position sizing, risk management, and tradable securities. By following this plan, traders maintain discipline, consistency, and leverage proven strategies.

Why you should create a trading plan

Ask a new trader what they intend to do before the trading day and then ask them what they did at the end of the day. They almost certainly didn’t follow their plan. 

Trading plans are there for us to follow. Trading plans mean we take trades that are consistent with our rules and risk, and it means we remove a lot of emotion and discretion . This is important because humans are not rational agents and outsourcing this work means we can achieve a better P&L and make more money. 

A trading plan should resemble a business plan. A trader’s capital is their business and so we need to include everything that might be useful, but it should always cover the below.

What to include in your trading plan

  • The time required to spend on your trading

Your trading goals and targets

  • Your risk tolerance and risk management rules

Available capital for trading

Specific markets you wish to trade, the trading strategies you’ll use, your motivation for trading.

Read more information on what to include in your trading plan (with examples) below, and download your free template here:

The time required for trading

We need to define the time we need in order to trade successfully. For example, if you’re in full-time employment, then it’s unrealistic to spend six hours a day trading the market.

For example: Here is a part of my trading plan…

“To trade the UK stock market on a full-time basis I realistically need to spend at least 8-10 hours per day in order to take advantage of intraday opportunities and manage open positions in real time”.

It’s important to set realistic targets in trading. Once you have a target, you can reverse engineer how to achieve it.

For example: A target of increasing a trading account by 20% is an achievable target. To do that, we need to look at our trading capital and work out which trading strategies we’ll use.

Using breakouts to trend follow is a strategy I have had much success with, and I explain how I do this in my guide to breakouts.

There are several trading styles:

  • Swing trading: This is a common strategy that attempts to capture moves over several days or weeks. Swing traders look for shorter term trends and then move onto the next trade.
  • Momentum trading: This is a trend-following strategy based on upward movement and momentum. It can be a successful strategy over months and years as the stock continues to move higher. This is often coupled with increasing fundamental strength and accelerating earnings.
  • Scalping or intraday trading (also known as ‘day trading’): Intraday strategies refer to trades placed and closed within the same trading session. 

Your risk tolerance and risk management rules 

Risk management is the most important part of trading. Position sizing is the first and last line of defence in our trading accounts.

If you take position sizes with 20% of your account, then that means you are risking 100% of that position every time it is risked in the market. Even if the chances are 99%, then eventually that 1 in 100 chance of the stock going to 0p and losing 100% of the position will happen.

Whilst a 20% drawdown on the trading account isn’t fatal, the law of compounding means that we will now need to gain 25% of our account just to get back to where we started. 

Never underestimate the numbers here – a 33% drawdown requires a near 50% gain just to get back to where we started. 

It’s important to put in place risk management rules that will protect the account and prevent us from taking on too much risk.

Only you will know how much risk you’re willing to take, but if you put yourself in a position where you could do yourself material damage, then eventually that outcome will be presented.

If taking a loss hurts, then it means you are trading too large. Most traders blow their accounts due to overexposure. I’ve never heard of a single trader who blew their account due to continuously taking small losses. Position sizing and risk management is covered in detail in my trading handbook.

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Traders should always be clear about what money should be used for trading and what money should stay in their bank accounts. 

Far too many traders have drawdowns in their trading accounts and decide to top up their account with a bank transfer.

Unfortunately, they end up putting far too much money into their account and do not keep track of their losses.

You should never trade with money you can’t afford to lose. I’ve had emails from people asking me what to do because they’ve lost the deposit for their house and they haven’t told their partner. Sadly, there is little that can be done at that point because the money is already lost.

In your trading plan you should be clear about how much is going into your trading account and how much you will top this up each month if that is going to be your strategy to grow your account further. 

However, the best way of growing your trading account is by making money trading successfully in the market. Once you can consistently do this, then it makes sense to increase your funds and scale up. 

A trading plan should also include the specific markets you wish to trade. Do you plan on trading UK stocks, US stocks, foreign exchange (forex), or cryptocurrencies? Once you’ve picked a market, you still need to drill deeper. 

For example: If you pick UK stocks will you trade all of these, or just AIM, or just the Main Market? Will you trade only small cap stocks? Will you trade both SETS and the SETSqx platforms ? 

In my case, I trade all UK stocks, and don’t discriminate between any of them. However, my focus is on smaller stocks under £500 million market cap. 

Your trading strategies are the ways you are going to make money. This part of the trading plan is important because by defining your strategies it will be clear to follow.

For example: I want to trade small-cap stocks that have momentum behind them, and I will find this momentum through technical breakouts and positive RNS announcements.

I will trade gaps and also place orders into the auctions in order to get better fills. I will use various brokers for different types of execution. I will take secondary raises that have news catalysts that can potentially drive the shares higher.

What is your why? What are your goals, and what is your motivation? Trading is hard and there are ups and downs – it’s easy to motivate yourself when the going is good and you’re making lots of money. But it can be harder when you’re suffered several losses in a row, and you keep seeing your account grind lower or flat for weeks on end. 

Writing down your why will make it easier to stay focused and commit to the long-term process and improvement.

For example:

  • I want to trade because I enjoy the challenge and I also want to be my own boss.
  • I want the freedom that comes with the lifestyle of a full time trader and I want to be around my wife and future children as they grow up.
  • I want to offer my family a better life, and by continuing to work on my skillset is putting me closing towards my goals.

Good trading plan example

draft a business plan for sole trading concern

How do you write a trading plan?

  • Know your trading playbook
  • Manage your risk 
  • Have a realistic profit target

1. Know your trading playbook

You should have a playbook of trades that you know how to execute in the market. A playbook is a list of trades, each with step-by-step instructions on how to trade the pattern. 

If you don’t know what you should trade in your trading plan then building a playbook of trades is a good place to start. 

2. Manage your risk

Risk management is a crucial skill for any trader. I’ve written an in-depth article on trading risk management for further information.

The reason risk management is so important is that without it we would blow up our accounts. Nobody would think about driving a car with no brakes because it would obviously crash – risk management is the brakes and safety system for our trading accounts.

Everyone has different risk profiles. Some are happy to take on high amounts of risk accepting that they may take hefty losses in order for the possibility of excess return. 

Full-time traders like myself tend to be more cautious knowing that if they lose too much capital, they may have to go back to work. 

You should include in your trading plan how much you’re prepared to risk on particular trades in your playbook and how much in your account overall.

3. Have a realistic profit target

Having an idea of a profit target will mean that you don’t end up falling into the trap of never selling. Far too many traders watch a stock rise, see it pullback, then immediately regret not nailing down profit into strength.

By setting out clear take profit targets this avoids indecisiveness and will ensure you execute ruthlessly. 

Bonus tip: Trade the stocks in play

Trading is about being in stocks that are moving. Volatility is the lifeblood of a trader, and a dead stock means dead money. 

The stocks ‘in play’ are the stocks that have moved or are moving in recent sessions, and the stocks we should be immediately keeping tabs on. Stocks can cycle in and out being in play, and so we need to keep track of those that offer the greatest volatility to trade.  

Download my free one-page trading plan template

My opening plan trading template has everything you need to begin the trading day. It forces you to check and review your open positions, so you’re always knowing what to do. 

It also suggests to list the current stocks in play, and how you can trade them, and in what size. Additionally, it asks “What can happen?” so a trader using this template will never be caught out.

By thinking ahead about potential scenarios and how to trade them, this gives the trader an advantage over others who do not put the work in. Traders who punt around their money without a clue or a plan are commonly referred to as “liquidity”.

To download the free template, click the button below and follow the instructions.

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Four Risks to Consider Before Creating a Sole Trader Business 

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By Thomas Sutherland

Updated on 4 October 2023 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

  • 1. Unlimited Liability  

2. Financial Instability

  • 3. Limited Expertise and Resources 

4. Lack of Work-Life Balance

Key takeaways.

Starting a business is an exciting endeavour that offers numerous opportunities for financial independence and personal growth. One popular route for aspiring entrepreneurs in the UK is establishing a sole trader business . A sole trader business is a business structure where an individual operates a business independently without forming a separate legal entity (unlike a limited company).   

While this approach has advantages, knowing the legal and financial risks is essential. This article will explore four significant risks individuals should consider before creating a sole trader business in the UK.

1. Unlimited Liability  

One of the most significant risks associated with running a sole trader business is the concept of unlimited personal liability . As a sole trader, you and your business are considered one legal entity. When completing a self-assessment tax return, you will be personally responsible for all the business debts and liabilities, including income tax liability.

Suppose the business runs into financial trouble or faces legal claims. As a sole trader, your personal assets, including your home and savings, could be at risk. Unlike other business structures, such as limited liability companies, where the owners’ personal assets are protected from business debts, sole traders do not have this safeguard.

Because of this, some individuals consider setting up a limited company instead. While this option requires more administrative work (including registration at Companies House ) and potentially higher costs, it separates your personal assets from the business’s liabilities, providing you with an extra layer of protection.

Running a business, especially in its initial stages, can be financially unstable. Any sole owner often faces irregular income streams and may need help managing cash flow effectively.  

This volatility can make it challenging to consistently cover personal and business expenses, leading to stress and potential financial hardships. Planning for the future or securing loans and credit when needed may be difficult without a stable income.

To mitigate this risk, many individuals create a detailed business plan that outlines their expected income and expenses. You could build an emergency fund to cover personal and business costs during lean months and consider seeking professional advice on managing your cash flow.

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3. Limited Expertise and Resources 

Sole traders often operate as one-person shows, meaning you are responsible for all aspects of the business.  

While this offers a high degree of control, it also means that you might lack expertise in certain areas, such as marketing, accounting , or legal matters. This can lead to a higher risk of mistakes or oversights that could severely affect your business’s success and compliance with regulations.

It is helpful to take time to recognise your strengths and weaknesses and invest time in learning about the critical areas of business that you lack expertise in. Consider outsourcing specific tasks or seeking mentorship from experienced professionals. Building a network of advisors, peers, or industry associations can provide you with valuable insights and support.

Business ownership can be demanding, and sole traders often find themselves working long hours, including weekends and holidays, to keep their businesses running. This intense work schedule can lead to burnout and negatively impact personal relationships and well-being.

The lack of a clear boundary between work and personal life can also result in chronic stress and decreased overall life satisfaction.

Establishing a strict schedule that allows for dedicated work hours and personal time can be helpful. Set realistic expectations for yourself and your clients regarding response times. Prioritising self-care and maintaining a healthy work-life balance is crucial to ensure long-term success and well-being.

Creating a sole trader business in the UK has numerous benefits, such as autonomy and flexibility.  However, it is essential to recognise and address the potential risks of this business structure.  

By being mindful of the potential for unlimited liability, devising strategies to manage financial instability, proactively addressing limitations in expertise, and prioritising work-life balance, aspiring sole traders can position themselves for success. Naturally, many individuals tackle these risks with the benefit of expert legal advice to ensure that the risks are effectively managed, and business profits are achievable.

If you need legal assistance creating a sole trader business in the UK, our experienced business structure lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page .

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Setting up a business as a sole trader

Your step-by-step guide to setting up your business as a sole proprietorship..

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In this guide

Step 1. Should sole traders write a business plan?

Step 2. how to register as self-employed in the uk, step 3. set up your space, step 4. open a business bank account, step 5. setting yourself up financially, step 6. you may need small business insurance, step 7. can sole traders employ people, step 8. begin marketing your business, and hopefully profiting.

Business banking guides

We compare the following business banking apps

Business banking providers

Business credit cards

Business bank accounts for

If you’re launching a business by yourself, setting up a sole proprietorship is your simplest option. It’s far less complicated than setting up a corporation.

However, there are still a number of essential steps to take. In this guide, you’ll learn what these essential tasks are and how to complete them.

Technically, you don’t need to write a business plan, unless you’re seeking outside investment. However, this remains a hugely beneficial task for sole traders either way.

A business plan helps you to understand why your business will be profitable. When written properly, it will help you identify and overcome potential hurdles before they pop up.

Your sole trader business plan should include the following sections:

  • Business name and address.
  • Your mission statement. Why does your business exist? What do you hope to achieve? What is your vision for the future?
  • Your target market. Include as much detail as possible. Write down why you have chosen to serve this demographic. Is there a gap in the market?
  • Products and services . A full list of what products and services you offer. How much does it cost to deliver each of them? How much will you sell each product and service for? What is the net profit?
  • Competitors. Who are they? Why would customers choose you instead of them. What is your unique selling point?
  • Marketing plan. What platforms will you use to market your business? What is your budget for each platform?
  • Financial plan. What are the estimated monthly running costs of your business, including the cost of launching? What are your monthly sales forecasts and how much profit will that attract? It’s good to have a minimum target, base target and stretch target.

It’s recommended to review and tweak your business plan at least once every quarter.

Sole traders should register as self-employed with HMRC at the earliest possibility. You can do this by visiting the government’s online registration portal .

You’ll need to decide on a business name, although most sole traders choose to use their own name.

After filling out your details, HMRC will post you a 10-digit Unique Taxpayer Reference (UTR) and login details for your online account. Keep hold of these, as you’ll need them to fill out your self-assessment form online.

Most sole traders are able to work without having to rent office space. Still, if you need a dedicated place of work, there a few cut-price options. Investigate whether a virtual office, co-working space or a serviced office could meet your needs. These are typically all cheaper than renting traditional office space.

No matter what your business is, an online presence is crucial in 2023.

As such, you’ll need to set up:

  • A professional website with web hosting and a unique domain name
  • Social media profiles
  • A presence on Google Maps and other listings websites in your niche

A business bank account basically works like a personal one – the main difference is that it’s dedicated to your business’s finances. You should therefore expect the same features, such as a debit card, the ability to make and receive payments, an overdraft option, a banking app and so on. You can compare business bank accounts here .

It may cost you a fair amount to launch your business, especially if you have a lot of equipment to buy. Our guide on business financing can help you find the best way to fund this if you don’t have money saved up.

Perhaps you’ll choose to set up a business bank account with an overdraft, or a business credit card to help set yourself up.

Make sure to keep accurate accounts of your spending and your income ready to submit to HMRC for the end of the tax year. Remember that most business expenses are tax-deductible .

Here is a list of small business insurance products you may need as a sole trader.

  • Public liability insurance (PLI). Protects you against claims resulting from customers or employees injuring themselves due to the activity of your business.
  • Professional indemnity insurance (PII). Protects you against legal claims for damages if your business negatively affects a customer.
  • Product liability insurance (PLI). Protects you from paying for damages to property or personal injury caused by your products.
  • Business contents insurance. Protects you from covering the cost of lost or stolen contents.
  • Personal injury or sickness insurance. Pays you a monthly income if you become injured or too sick to work.

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  • Get covered in less than 10 minutes
  • Adapt or cancel your policy at any time. No penalties
  • Cover starts from just £17.28 per month

Yes, sole traders can employ people. When doing so, you’ll have the same responsibilities to your employees as a corporation does.

These responsibilities include:

  • Registering as an employer with HMRC
  • Paying taxes on your employee wages
  • Creating an employment contract
  • Setting up a payroll system to automate payslips for your employees and deduct the right amount of tax from their wages
  • Setting up your employees for pension auto-enrolment

It will help to read up on various aspects of employment law, including the rules surrounding working hours, minimum wage, maternity leave, hiring and firing regulations, employee discrimination and so on.

With an effective marketing strategy outlined in your business plan, there should be no reason not to start marketing from the day you launch.

An effective marketing strategy should start attracting customers immediately.

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Matthew Boyle

Matthew Boyle is a banking and mortgages publisher at Finder. He has a 7-year history of publishing helpful guides to assist consumers in making better decisions. In his spare time, you will find him walking in the Norfolk countryside admiring the local wildlife.

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Home › Insights › Blogs › Contingency Plan for a Sole Business Owner Dropping Dead

Contingency Plan for a Sole Business Owner Dropping Dead

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My last blog discussed the consequences of a sole business owner dropping dead or having a sudden disability without a plan. Hereare some illustrative points that can be used to get you started toward a plan. The goal is to prepare soin event of a sudden death or disability someone can quickly assume control of the business and continue operations.

First steps

  • The owner would be trustee as long as he is able to perform all duties. Death is easily defined. Disability would need to be defined in the trust agreement
  • Someone of owner’s choosing would be selected as the alternate trustee who would only become elevated to trustee upon owner’s death or the “disability”
  • An alternative to the living trust for disability is a specific durable power of attorney. However, this would not be effective for death
  • Another alternative, also less effective, is to elect another officer, e.g. assistant secretary, with bank signatory power as a fall back
  • Either as part of the living trust or in a separate agreement of instructions, the owner would spell out his wishes, as suggestions, of how he wants the business to be operated. It would be suggestions since things change and the trustee (or person acting under the power of attorney) should not be bound by what he writes in the agreement

Critical decisions

  • The trustee (as I will refer to the person operating the business) as “owner” and the person controlling the trust would immediately arrange to become a signatory at the bank accounts (if not previously arranged)
  • Various key people that the owner will list will be consulted in hiring and firing, scheduling staff, billing customers, customer relationship contact and other issues that will be identified by the owner in meetings with the alternate trustee. These meetings should take place at six month intervals BEFORE any disability or death
  • Payroll payments would have to be made as scheduled and this would be one of the early actions, as would the continued servicing of customers or clients and meeting with customer contact people to assure them of the continuity of the business
  • Cash-flow distributions to the owner’s family will be made to provide for any care he needs. This would be done in conjunction with his Health Care Proxy person
  • If it appears, the disability will be prolonged, or if there is a death, a decision will be made whether to sell or continue the business, and whether someone should be hired to handle day to day operations, in effect to become a general manager or chief operating officer
  • Long term decisions such as lease renewals, pricing changes, or hiring permanent management personnel, with exception of a general manager, should be deferred as much as possible
  • Any plan should be in writing and discussed with the Company’s banker (if large lines of credit exist) and any other “interested” party
  • Compensation should be established for the trustee based on a fixed amount for oversight and responsibility and a payment arrangement based on time, value creation or staff working on the Company’s activities. Additionally, the trustee should receive a payment for assisting in the sale of the Company
  • Communications with family members will need to be kept open and the existence of this arrangement should be told to them
  • Beforehand, the owner would need to identify major competitors and others in the industry that might be potential buyers
  • Trustee will need to engage a professional to prepare a “book” and then initiate contact with potential buyers starting with the companies identified by owner
  • If these companies are not practical purchasers, or if assistance is needed, then a business broker or an investment banker should be engaged

Pre-planning

  • For long-range disaster planning, owner should assemble a board of directors or advisors
  • Complete instructions of operating the company and selling it with all the backup a representative would need to know should be written out and kept in an easy to access location if needed
  • Included in the instructions would be documentation of passwords, processes, procedures, comments about individual employees and customers and customer contact people, and a list of what owner does in a typical day, or week
  • If the business’ ownership is placed in a living trust, then owner’s will will not be operative with respect to the business, or anything else in the trust
  • Owner’s primary concern should be the continuation of the business if he is disabled
  • A second concern will be maximizing the value for himself if he is permanently disabled or for his family if he dies, or reducing winding down costs as much as possible
  • It is suggested that owner consider life insurance as a method of providing for wealth transfer to his family [independent of the business] and to assure bankers of the repayment of outstanding loans
  • A life insurance trust should be set up as the owner of the policy with the bank as a beneficiary to the extent there is outstanding debt. The mechanics of this will need to be worked out to consider estate and income taxes, especially with the repayment of the bank loan
  • Reality has to be recognized and that is the precarious nature of life
  • A contingency plan that can be implemented almost immediately under the worse type of conditions needs to be established for both the people involved and the business
  • The costs of setting up the plan are an investment you hope will be wasted with God’s grace, but that will provide assurance to key people, customers, vendors, lenders and family, and also to yourself should you become disabled

Use this outline as a starting pointto establish a plan that would work for you. You give up no control as long as you are ok. A major factor in long-range planning is to reduce confusion and to assure continuity and cash flow if the owner becomes disabled and maximizing value if he dies.

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Business.govt.nz, in association with, what to do when selling your business.

When it’s time to sell your business — whether you operate it as a sole trader, partnership or company — you’ll want to get the best price you can for it. You’ll also need to know how to sell it, who to and what it’s really worth.

You can think about selling your business at any stage, from before you launch to approaching retirement. Some people start a business with a plan to sell it within a set time, eg five to seven years. For others the idea to sell comes after they’ve established the business or have been running it for years and want to step back.

Selling a business is a specialist area so it’s worth getting an advisor to help you.

Closing your business

Getting ready to sell

To get the best return on your investment in a business, you need it to be in the best shape when it goes for sale. Here’s what you should look at.

Potential buyers will want a thorough look at your finances to make sure they’re buying a sound, profitable business. If your finances don’t reinforce your asking price, you may need to sell for less or reinvest to make the business more attractive. To make sure your finances are in the best shape for sale:

  • sell assets your business doesn’t use
  • stop investing in long-term projects
  • produce a realistic financial forecast — a good business advisor will spot an exaggerated one.

Business plan

Potential buyers will ask for your business plan, so if you don’t have one, create one. It should show your business works efficiently, has good management and how you plan to grow it.

Cash flow forecasting

Tips on business finances

Business planning tools and tips

Start-up business plan

Don't let the name fool you — this template is useful any time you need a full and thorough business plan.

Customise it to suit  — this could mean adding in extra sections, or cutting out ones that you don't need.  

Quick-focus business plan

Quick-focus planning to make sure you work on the right things for your growing business - every day.

It’s important to take time to reflect on your business strategies and plan. It doesn’t have to be a difficult or time-consuming task.

Address any staffing problems before you put the business up for sale.

Buyers may be put off if there’s a risk of inheriting difficult employment relationships.

Resolving employment issues has more tips.

Succession planning

A succession plan puts in place steps to run your business successfully without you. Having a plan is essential if you’re thinking of selling or taking a back seat role.

Make sure all machinery and other equipment is well maintained. Give your premises a thorough clean and fix any maintenance issues.

A new owner will want to hit the ground running, so:

  • Lock key suppliers and customers into contracts.
  • Sort out looming problems, eg paperwork for a compliance change.
  • Get up to date with health and safety standards and other obligations you have as owner or employer.

Legal issues

Nothing raises the alarm to buyers like finding out there’s a legal case pending you failed to mention. Before you put the business up for sale, make sure you:

  • resolve any legal disputes
  • protect your intellectual property
  • own all assets on the balance sheet.

Information for buyers

Prepare an information memorandum with details about your business — this will outline what buyers need to know to make their decision. It should be big on facts and show how they could grow the business.

Stepping back from your business

Think carefully about what to put in your information pack. Leave out confidential information that could be leaked, eg about your customers, and get professional help to write it.

Who’ll buy your business.

Finding and negotiating with potential buyers is time-consuming and specialist work, so think about hiring a business broker to do it for you. A broker will know which type of buyer will be interested in your business and how to approach them. Buyers may be:

  • employees — this is known as a management buyout
  • competitors
  • suppliers or customers
  • entrepreneurs
  • investment groups.

What’s my business worth?

It may sound obvious, but your business is worth what someone will pay for it. Owners and shareholders often over-inflate their business’ worth. An advisor can help you accurately value your business based on its assets, how much profit it makes, or how much it would cost the buyer to start the business from scratch.

When to consider intellectual property

New Zealand has no capital gains tax, so you won’t be taxed on profits you make selling a business. However, there are other taxes and obligations that may apply. Your options when selling can also differ depending on the business structure you have. It’s worth speaking to a professional advisor for specialist help.

Sole traders

Selling your assets may result in GST to pay if buyer and seller are both GST registered. It’s best to talk to an accountant about GST and income tax before you sell your assets.

Selling shares

If you hold all shares in your company, you may want to sell the business as a going concern. When selling shares, it’s your responsibility to update shareholder details with the Companies Office. You can also ask a director with company authority to this on your behalf.

Finance tips to help your business

Business structure overview

Selling your shares could have tax implications — talk to your accountant or tax advisor first.

Intellectual property.

Your intellectual property (IP) can be a huge part of the value of your business to a buyer. So, make sure any IP your business owns has been protected and registered.

Checklist of common IP assets

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Overview of business structures.

Starting a business or going contracting? Find the best set up for you — sole trader, partnership or company.

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Use this checklist to make sure you identify all your assets — and get the most value from each one.

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Covid-19 Business continuity planning sole traders-1

How to write a business continuity plan 

Step 1: brainstorm different scenarios.

  • Illness, disability and death: factor in various degrees of illness, such as short term or more serious and debilitating, or even death 
  • Natural disasters, fires or floods: consider the impact of a natural disaster on your workplace (which may also be your home) 
  • Gas leak or power cut: you'll need to deal with the incident and also have a back up plan for continuing work 
  • Malicious internet attack: cyber security threats like ransonware attacks don't just target large corporates, hackers also target small businesses and individuals who may have no alternative but to pay a ransom if their systems aren't backed up regularly 
  • Biological hazard: the Salisbury nerve agent attack is a good example of where a serious biological hazard can have a detrimental impact on businesses in the area 

Step 2: How can you protect your business now? 

Step 3: list key contacts .

  • Contractors and service providers 
  • Suppliers and distributors    
  • Bank managers, accountants, solicitors and insurers 
  • IT consultants, electricians or engineers 
  • Utility companies 

Step 4: Plan for each scenario

Step 5: who can help.

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Sole-trader: definition, characteristics and other details.

draft a business plan for sole trading concern

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“A sole-trader is a person who carries on business exclusively by and for himself,he is not only the owner of the capital of the undertaking, but is usually to organise and manage and takes all the profits or responsibility for losses.”

Introduction :

Sole trade is the oldest and most commonly used form of business organisation. It is as old as civilization is. Historically, it appears that business first started with this form of organisation. With the development of science and technology the needs of the business also increased and new forms of organisation developed. This organisation is also known as Sole-Proprietorship, Individual-Proprietorship, and Single Entrepreneurship. In sole trade organisation, an individual is at the helm of affairs. He makes all the investments, shares all risks, takes all profits, manages and controls the business himself.

The sole-trader mainly depends up to his own resources, so the business is generally on a small scale basis. The business is normally run with the help of family members but he may employ persons to look after the day-to-day activities of the business. So far as his liability is concerned, it is unlimited.

The creditors are entitled to have claim even on his private property. The sole-trader moulds the fate of the concern. It is the competence of the proprietor which determines the future of the business. His powers are unlimited and his decisions are final. He is, in fact, the sole organiser, manager, controller and master of his business.

The sole-trader must, however, be a person competent to enter into a contract. The business to be carried on should also be allowed by law. In some instance, a person may be expected to take a license from competent authorities before starting a business. These formalities should be completed before hand. Normally, no other legal formality is essential for starting a sole-trade business as in the case of a company or a co­operative.

Any person can start or wound up a sole trade business any time. This type of business is a one man show and the capacities of that person may certainly be limited. He may not be able to deal with every situation himself; so there may be chances of committing mistakes. Since the liability is unlimited and is to fall on one person, he should have a cautious approach.

Definitions :

Some important definitions are discussed to have a clear view of sole trade form of organisation:

(i) L.H. Haney:

“The individual entrepreneurship is the form of business organisation on the head of which stands an individual as the one who is responsible, who directs its operations and who alone runs the risk of failure.” According to Haney, the business is in the hands of one person who is not only responsible for its management but also for its risks.

(ii) James Stephenson:

“A sole-trader is a person who carries on business exclusively by and for himself,he is not only the owner of the capital of the undertaking, but is usually to organise and manage and takes all the profits or responsibility for losses.” James Stephenson emphasis that sole-trade business is carried on by one person with his own funds and according to his managerial capabilities. He is also responsible for the success or failure of this business.

(ill) S.R. Davar:

“The sole-trader is a person who carries on business of his own, that is, without the assistance of a partner. He brings in his own capital and uses all his labour. He also gets himself assisted by others to whom he pays a salary by way of remuneration.”

According to Davar a sole-trader uses his resources only and does not get the help of a partner. With the increase in work he may employ some persons for his help who get salary for their work. The adding of a partner will even change the form of organisation because it will become a partnership concern then.

A sole trader is a person who sets up the business with his mm resources, manages the business himself by employing persons for his help and alone bears all the gains and risks of the business.

Characteristics of Sole Proprietorship :

(i) Individual Initiative:

This business is started by the initiative of a single person. He prepares the blue prints of the venture and arranges various factors of production. He may employ other person for assistance but ultimate authority and responsibility lies with him. All the profits and losses are taken by the single individual.

(ii) Unlimited Liability:

In sole trade business liability is unlimited. The proprietor is responsible for all losses arising from the business. The liability is not limited only to his investments in the business but his private property is also liable for business obligations.

(iii) Management and Control:

The proprietor manages the whole business himself. He prepares various plans and executes them under his own supervision. There may be some persons to help him but ultimate control lies with the owner.

(iv) Motivation:

One person is the sole owner of the business. He takes all profits and bears losses, if any. There is a direct relationship between efforts and reward. If he works more, he will earn more. He is motivated to expand his business activities. He will not like to enter speculative business because the risk involved is more.

(v) Secrecy:

All important decisions are taken by the owner himself. He keeps all the business secrets only to himself. Business secrets are very important for small business. By retaining business secrets he avoids competitors entering the same business.

(vi) Proprietor and proprietorship are one:

Legally, the sole trader and his business are not separate entities. Loss in his business is his loss and liabilities of the business are his liabilities.

(vii) Owners and business exist together:

In sole-trade business there is no separate existence of the business with the owner. The business and owner exist together. The business is dissolved if the owner dies, becomes insolvent or is removed from the scene.

(viii) Limited area of operations:

A sole-trade business has generally a limited area of operations, the reason being the limited resources and managerial abilities of the sole trader. He can arrange limited funds only and will be able to supervise a small business. Since all decisions are to be taken by the proprietors, so the area of business will be limited with his management abilities.

(ix) Free from Legal Formalities:

A sole trade business can be started without performing any legal formalities. It does not require any formation or registration.

(x) Discretionary start and end:

A sole trader can start the business as per his will and similarly can dissolve it as per his discretion.

(xi) Freedom in Selection of Trade:

A sole trader is free to decide the type of business activity he wants to start. He is not supposed to consult anybody for taking such decisions.

(xii) Distribution of Profits:

A sole trader is the single owner of the business, he takes all the profits himself. He puts all his efforts into the business and takes all the fruits of his labour.

Objectives of Sole-Trade Business :

A sole-trade business is set up by one person with his own resources.

This form of organisation is set up for the following objectives:

(i) Channelise Individual Funds:

Individuals have small surplus funds with them. These funds are not enough to set up big business. People may not like to risk their funds in those businesses where they have no say and control. It is better to set up a small business instead of keeping the funds idle. So sole-trade business provides a channel to make productive use of individual funds.

(ii) Strengthen Distribution Channel:

Sole-Trade business is generally on a small scale basis. People set up small retail outlets under sole-proprietary organisation. A retailer is an important link in the chain of distribution. He is in direct contact with the consumers. No distribution channel from the producer to the consumer can be successful without the active involvement of sole-traders.

(iii) Serve Consumers:

A small trader comes in direct contact with the consumers. A consumer wants to buy his day-to-day requirements from the nearest place. Sole-traders set up their shops wherever the consumers are available. A consumer saves time by purchasing daily necessities from the nearest retail outlet.

(iv) Create Self-employment Opportunities:

By setting up a sole trade business, the owner has created an employment for himself. Instead of looking for jobs outside, this is a form of organisation which helps people to create work for themselves.

(v) Avoid Concentration of Wealth:

In order to avoid concentration of wealth in a few funds, sole trade business helps in its distribution among large number of people. When large number of people enter into different businesses, may be at a small scale, it helps in distribution of economic wealth.

(vi) Help Large Business:

The success of large-scale business is also linked to the help provided by small business units. Small units provide ancillary service to big units. Large units require a number of small components from small units. So sole-trade business provides service to large units by providing them all those things which they do not want to manufacture themselves. In Japan, all large scale units depend upon the supplies from small units.

Formation of Sole-Trade Business :

A sole-trade business is such a form of organisation which requires no formalities to set it up. Any individual can set up a business whenever he likes. There is no legal requirement to form a sole trade business. However, if some business requires a prior sanction of the government then such formalities will have to be completed.

The usual decisions for setting up every business are taken care of in sole-trade business also. The first thing to be decided is the selection of a particular line of business. To take this decision, the demand potential of a product if it is a manufacturing unit or presence of consumers if it is a retail business has to be assessed first.

Then the requirement and availability of resources has to be assessed. Generally, sole-traders depend upon their family resources for setting up a business. With the expansion of banking facilities at most of the places, sole-traders have now started availing credit facilities to expand their work. The selection of a proper site is very important in a sole-trade business.

Since most of the retail trade is in the hands of sole-traders, the selection of a place for setting up the business is very important. The requirements of customers should be taken into account while selecting a business site.

Though customers want to purchase their day to day necessities at their nearest place but they will prefer to visit the main shopping centre to purchase durable goods like T.V., fridge, washing machine, music system etc. The business is set only after considering various factors. Sole-trade business can be closed at any time by the proprietor. As in case of other forms of organisation, no legal formalities are required to be performed for winding up of this business. Both formation and winding up of sole-trade business is an easy affair.

Legal Position of Sole-Trade Business :

Following points will explain the legal position of a sole-trade business:

(i) There is no specific law under which this business requires registration etc. A Joint Stock Company has to be incorporated under Companies Act, 1956, a partnership firm is governed by Partnership Act, 1932, a sole trade business is not governed by any such statute. So this business can be started and dissolved at the discretion of the owner without reference to any statutory provisions.

(ii) The sole-trade business will be subject to the general laws of the land. If there is a provision of getting a licence for setting up a particular business, then the sole trader will also get the licence before setting up such a business. A person desirous of starting a wine shop is expected to get a licence from the State Government. A sole trader wanting to enter this business will certainly be expected to comply with this law.

(iii) The sole trader and his business are one and the same thing. The business exists only with the sole trader. If he disappears from the scene due to death or some other reason, then the business will also be dissolved. The proprietor and his business have one personality.

(iv) The liability of the sole trader is unlimited. If a business is dissolved then no distinction is made between business and private assets and business and private loans of the sole trader.

Suitability of Sole Proprietorship :

The amount of capital and managerial skill required for a particular business influences the decision about form of organisation. When the scale of operations is small then capital requirements will be less and sole proprietorship is the most suitable form of organisation.

With the improvement of industrial technology and devising of new production methods, the needs for capital have increased. Other forms of organisation like partnership and joint stock company have also become popular. There are certain types of businesses where sole proprietorship is still the most suitable form of organisation. This form of organisation is also suitable under certain circumstances.

These circumstances are as follows:

(i) Where market is local:

When market for a product is limited only to a particular place, scale of business operations will be small. The amount of capital required will be less and the ordinary managerial skill will be sufficient. Under such situations, sole proprietorship will be most suitable. Most of the retail trade is controlled by sole traders.

(ii) When personal contact with customers is required:

There may be a need for personal contact with customers. The customers may have their likings and preferences for particular things. Under these situations sole proprietorship form of organisation will be suitable. A doctor and a lawyer will be required to have direct contact with his patients and clients. A customer may have his own liking for getting his clothes stitched. So, in all these cases sole proprietorship will be more useful.

(iii) Speculative business:

In speculative business the demand and prices of products change quickly. The businessman is required to take prompt decision. A sole proprietor can take immediate decisions as warranted by the situations. He need not consult anybody else. So he can decide the things himself. No other form of organisation will be as suitable for speculative business as sole proprietorship.

Social Desirability of Sole Proprietorship :

The limitations of sole proprietorship have necessitated the development of other forms of organisation. The wide spread use of other forms of organisation has not eliminated sole proprietorship; rather it continues to be most popular form of organisation in every country. This form of organisation has a social desirability too.

Its social necessity is because of the following reasons:

(i) Employment to large number of persons:

This form of organisation is started by one person but he takes other persons for his help. The number of sole traders is very large in all countries and they employ many persons as their helpers. So, sole proprietorship is able to provide employment to a large number of persons.

(ii) Need of less capital:

This form of organisation can be undertaken by the persons of all means. A person with small resources can start a business at a small scale. A vegetable seller can start his business with few hundred rupees and get his capital back at the end of the day. So, this type of form encourages people to take their independent business.

(iii) Less risk:

Generally, sole proprietorship is started at a low scale and investments made are also less. A person can even change his line of business if it is not suitable because it is less risky to do so.

(iv) Providing goods at low prices:

The consumers are provided goods at low prices under this type of form. The number of sole traders being large, they have stiff competition from one another and consumers are provided goods at competitive rates. The overhead expenses of the business are, generally, less; so it enables the sole traders to sell goods at low prices.

(v) Equal distribution of income:

This form of organisation acts as a constraint on the monopolistic tendencies of other forms of organisation. The large number of persons enters the business; so this results in equal distribution of income. Every person is able to invest his savings and get an equitable return on it. When the business is in the hands of few persons, then it results in concentration of wealth in the hands of some persons only.

(vi) Helpful to small producers:

The sole traders purchase goods from small producers and sell them to the consumers. A number of inter-mediators are eliminated from the channel of distribution. The part of profit earned by mediators in the shape of commission is partly left with the producers and partly passed on to the consumers in the shape of low prices.

(vii) Helpful to consumers:

The consumers are helped by some traders in making their purchases. The sole traders open their shops in streets so that consumers are able to make purchases from nearby shops. The goods are supplied even at the door step by hawkers, etc.

(viii) Acts as training centres:

A sole trade business provides an opportunity to learn the techniques of business. The investments being less so one can afford to learn by trial and error method. By bearing various pros and cons of a business one can expand it later on. So, this is a good form of organisation to get business training.

Related Articles:

  • Expansion of A Sole Proprietary Business
  • Sole Proprietorship Firms: Characteristics, Merits, Limitations

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Educating for Human Greatness

  • Business Studies I

Sole Trading Concern

August 30, 2023

draft a business plan for sole trading concern

A Sole Trading Concern, also known as a Sole Proprietorship, is one of the simplest and most common forms of business ownership. It’s a business structure where a single individual owns and operates the entire business. In this arrangement, the owner is both the decision-maker and the person responsible for the day-to-day operations of the business.

  • According to Hornby’s Advanced Learner’s Dictionary of Current English , a sole trading concern is “a business owned and run by one person.”
  • The Law of Business Organizations by Robert W. Hamilton defines a sole proprietorship as “a business owned and operated by one person who is solely liable for its debts.”
  • Business Law: Text and Cases by Henry R. Cheeseman et al. defines a sole proprietorship as “a business owned and operated by one person who is personally liable for all its debts and obligations.”

Features/ Characteristics of Sole Trading Concern

Here are some key features and characteristics of a Sole Trading Concern:

Ownership: The business is owned by a single individual, often referred to as the “sole proprietor.” This individual provides the capital, makes all the important decisions, and assumes all the risks and liabilities associated with the business.

Control: The sole proprietor has complete control over all business operations, including decision-making, planning, and execution. This allows for quick and flexible decision-making, as there are no partners or board members to consult. This can be advantageous for swift decision-making but might also result in missed opportunities for diverse perspectives and expertise.

Liability: One of the most significant aspects of a sole trading concern is that the owner has unlimited personal liability for the business’s debts and obligations. This means that if the business faces financial trouble or legal issues, the owner’s personal assets could be at risk to cover the business’s liabilities.

Taxation: The income earned by the sole proprietorship is typically considered the owner’s personal income. This means that the business’s profits and losses are reported on the owner’s personal tax return. Depending on the jurisdiction, the business may also need to obtain a separate business license or register for specific taxes.

Simplicity: Sole proprietorships are relatively easy to set up and operate. There are usually fewer legal formalities and paperwork requirements compared to other business structures. This simplicity can be advantageous for individuals looking to start a small-scale business quickly.

Limited Resources: Since the business relies solely on the owner’s resources and abilities, there might be limitations on the scale and scope of the operations. Expanding the business may be more challenging due to limited financial resources and expertise.

Lack of Continuity: The life of a sole proprietorship is closely tied to the owner’s life. If the owner decides to retire, pass away, or become incapacitated, the business may face challenges in terms of continuity and ongoing operations.

Sole Responsibility: The owner is responsible for all aspects of the business, which can be both empowering and overwhelming. From managing finances to marketing and customer service, the owner wears many hats.

Privacy: Sole proprietorships offer a level of privacy since there’s generally no requirement to disclose financial information or operational details to the public or government authorities, apart from what’s necessary for tax purposes.

Risk Bearing: In a sole trading concern, the sole proprietor bears all the risks associated with the business. This means that if the business faces financial losses, debts, or legal liabilities, the owner’s personal assets are at risk. The owner’s liability is unlimited, and they might have to use their personal savings or assets to cover business debts. This can create a high level of personal financial risk, especially if the business encounters significant challenges.

Lack of Legal Existence: A sole proprietorship does not have a separate legal existence from its owner. Legally, the business and the owner are considered the same entity. This lack of legal distinction means that the business cannot enter contracts, sue, or be sued in its own name. Any contracts or legal actions are carried out in the name of the owner. This can limit the business’s ability to access certain opportunities and resources that might require a separate legal entity.

Flexibility: Sole trading concerns are known for their flexibility and agility. The owner can adapt the business strategy, offerings, and operations quickly in response to market changes or customer preferences. This adaptability is facilitated by the absence of complex organizational structures.

Ease of Formation: Establishing a sole proprietorship is relatively straightforward and requires fewer formalities compared to other business structures. However, specific requirements and regulations might vary depending on the jurisdiction.

Direct Connection to Customers: The sole proprietor often has a direct connection to customers, which can facilitate personalized customer interactions and build strong relationships.

Overall, a Sole Trading Concern can be an excellent choice for individuals who want to start a small business with full control over its operations. However, potential owners should carefully consider the risks associated with unlimited liability and be prepared to take on all responsibilities that come with running a business on their own. It’s often recommended to consult legal and financial professionals before establishing a sole proprietorship to ensure a clear understanding of the legal and tax implications in your jurisdiction.

Reasons for (Advantages of) Starting Sole Trading Concern

Starting a sole trading concern (sole proprietorship) can offer several advantages for individuals considering entering the world of business. Here are some key reasons why someone might choose to start a sole trading concern:

Easy Formation: Establishing a sole trading concern involves minimal legal formalities and paperwork compared to other business structures. This simplicity makes it an attractive option for individuals who want to start a business quickly and with minimal administrative hassle.

Full Control: As the sole proprietor, you have complete control over all aspects of the business. You can make decisions without the need for consensus from partners or board members, allowing for quick and flexible decision-making.

Direct Profits: All profits generated by the business belong to the sole proprietor. There’s no need to share the earnings with partners or shareholders, which can be motivating for those who want to directly benefit from their hard work.

Flexibility: Sole proprietors can easily adapt to changes in the market, customer preferences, or business strategies. Without the need to consult others, you can swiftly implement new ideas and adjust your offerings.

Personalized Customer Relationships: Operating a sole trading concern often allows for more personalized interactions with customers. You can build strong relationships and provide a personalized touch that might be harder to achieve in larger, more complex business structures.

Privacy: Sole proprietors typically enjoy a greater degree of privacy compared to businesses with more formal structures. There’s usually no legal requirement to disclose financial or operational information beyond what’s necessary for tax purposes.

Low Operating Costs: Since there’s no need to consult partners or adhere to complex organizational hierarchies, sole trading concerns tend to have lower operating costs. This can be especially advantageous for small-scale or niche businesses.

Quick Decision-Making: With sole control, you can make decisions swiftly without the need for bureaucratic processes or lengthy consultations. This can be crucial when responding to market changes or opportunities.

Direct Relationship with Suppliers: As a sole proprietor, you directly manage relationships with suppliers, negotiating terms and building rapport. This can lead to more personalized arrangements and potentially better deals.

Autonomy and Pride: Many entrepreneurs value the autonomy that comes with running a sole trading concern. Building and growing a business on your terms can be a source of pride and personal fulfillment.

Ideal for Small Scale: Sole trading concerns are well-suited for small-scale operations, such as freelance services, local retail, consulting, and individual craftsmanship.

Ease of Dissolution: If you decide to close the business, the process of dissolving a sole trading concern is generally simpler compared to more complex business structures.

It’s important to note that while there are numerous advantages to starting a sole trading concern, there are also limitations and risks, such as unlimited personal liability and limited resources for expansion. Careful consideration of these factors, along with your business goals and circumstances, is essential when deciding on the best business structure for your endeavors.

Disadvantages of Sole Trading Concern

While a sole trading concern (sole proprietorship) offers several advantages, it also comes with certain disadvantages and challenges that individuals should consider before opting for this business structure. Here are some of the key disadvantages:

Unlimited Liability: One of the most significant disadvantages is unlimited liability. The sole proprietor is personally responsible for all business debts, obligations, and liabilities. This means that if the business faces financial difficulties or legal issues, the owner’s personal assets could be at risk, potentially leading to financial ruin.

Limited Resources: Sole trading concerns typically rely solely on the owner’s personal resources for funding and operations. This limitation can make it challenging to scale the business, invest in growth, or take advantage of larger opportunities.

Limited Expertise: Running a business requires a diverse skill set, from marketing and finance to operations and customer service. As a sole proprietor, you might not possess expertise in all these areas, which could impact the overall success of the business.

Workload and Burnout: Sole proprietors often take on multiple roles and responsibilities, leading to a heavy workload. Balancing various tasks without a support system can lead to burnout and fatigue.

Lack of Continuity: The business’s continuity is closely tied to the sole proprietor’s life. If the owner decides to retire, faces health issues, or is otherwise unable to manage the business, the continuity of operations might be at risk.

Limited Growth Potential: Due to financial constraints and the owner’s limited time and resources, the growth potential of a sole trading concern can be limited. Expanding the business may require external funding or partnerships.

Risk of Inefficiency: With limited resources and expertise, certain aspects of the business might be less efficient than in larger, more specialized organizations.

Difficulty in Raising Capital: Obtaining funding for a sole trading concern can be challenging. Banks and investors might be hesitant to lend money or invest in a business with limited legal structure and potential risks.

Limited Innovation: The lack of diverse perspectives and input from partners or team members might limit the scope of innovative ideas and solutions.

Dependency on Owner: The business heavily relies on the owner’s presence and efforts. Taking time off or pursuing personal interests can be difficult without affecting the business’s operations.

Perception and Credibility: Some clients, customers, and partners might perceive a sole proprietorship as less established or credible compared to businesses with more formal structures.

Legal Limitations: Sole trading concerns might face legal limitations in certain industries or jurisdictions. Some contracts or opportunities might require a more formal business structure.

Difficulty in Hiring: Hiring employees might be challenging due to the limited financial resources and benefits a sole trading concern can provide.

Personal Strain: The stress of managing all aspects of the business can impact the owner’s personal life and well-being.

Limited Tax Benefits: Depending on the jurisdiction, sole proprietors might have fewer tax benefits and deductions compared to businesses with other structures.

While a sole trading concern can offer simplicity and control, the disadvantages associated with unlimited liability, limited resources, and potential growth limitations require careful consideration. Entrepreneurs should thoroughly assess their business goals, risk tolerance, and available resources before deciding on this business structure.

Registration and Renewal of Sole Trading Concern in Nepal

Registration:.

The registration and renewal of a sole trading concern in Nepal is governed by the Private Firm Registration Act, 2014. The following are the steps involved in registering a sole trading concern in Nepal:

Choose a unique business name. The name of the business must not be the same as the name of any other registered business in Nepal.

Prepare the registration documents. The following documents are required for registration:

  • Application form for registration of a private firm
  • Copy of the owner’s citizenship certificate
  • Copy of the rent agreement for the business premises
  • Proof of payment of registration fee

Submit the registration documents to the Department of Commerce and Industry. The registration documents can be submitted in person or by mail to the Department of Commerce and Industry.

Pay the registration fee. The registration fee for a sole trading concern depends on the nature of the business. 

Obtain the certificate of registration. Once the registration documents are processed, the Department of Commerce and Industry will issue a certificate of registration.

Obtain a PAN (Permanent Account Number) : Apply for a PAN from the Inland Revenue Department. This is a unique identification number necessary for tax purposes. (

Tax Registration: Register your business for Value Added Tax (VAT) if your business meets the threshold for VAT registration. This is typically required for businesses with substantial turnover) 

The registration of a sole trading concern is valid for one year. The registration must be renewed every year within 35 days of the beginning of the new fiscal year. The renewal process is similar to the registration process, and the required documents are the same.

If the registration of a sole trading concern is not renewed within the stipulated time, a fine of NPR 35 will be charged up to the last date of Ashwin. After that, a fine of NPR 150 will be charged. If the organisation doesn’t renew with a penalty and follows rules/policy then the Government body can cancel the registration of the company. 

IMPORTANT : 

It’s crucial to note that the specifics of the registration and renewal process, as well as the required documents, can vary based on factors such as location, business activities, and regulatory changes. It’s recommended to consult the following sources for the most accurate and current information:

Office of the Company Registrar (OCR): The OCR is responsible for business registration in Nepal. Their official website or office can provide detailed information on the registration process: http://www.ocr.gov.np/

Inland Revenue Department: For information on obtaining a PAN and tax registration: http://www.ird.gov.np/

Local Government/Municipality: Check with your local municipality or government office for any specific registration requirements at the local level.

Legal Advisors: If you’re uncertain about the registration process or need legal guidance, consider consulting legal experts or business consultants familiar with Nepal’s business regulations.

Tags: Business Studies XI Chapter 4 Forms of Business Ownership

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State the features of sole trading concern.

Features are- 1. single ownership: the sole trader is a single owner of the organization. the sole trader owns all the assets and property of the business. the sole trading concern is often referred (said) as “one man show” 2. unlimited liability: the liability of the sole trader is unlimited. this means he is alone responsible for all the risks and debts of the firm. 3. minimum government control: sole trading concern is less affected by government control. this is because, there are almost no legal formalities are required to start or close down a business. 4. business secrecy: the sole trader can maintain complete business secrecy. he needs not to publish any accounts and reports to any body. competitors cannot easily get business secrets and information of the sole trader’s activities. 5. flexibility: sole trader enjoys maximum flexibility. he can take right decision at the right time depending upon the situation. at any time, he need not have to consult with anyone because he is a single owner of his business. 6. no sharing of profit and losses: there is a direct relationship between efforts and rewards. this results in best possible efforts on the part of sole trader. therefore, he can enjoy all the profits of his business. 7. legal status: - legally, the sole trader and his business concern are one and the same in the eyes of law. the sole trader and his business cannot be separated from each other. so the sole trader lacks legal status..

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    The sole-trader moulds the fate of the concern. It is the competence of the proprietor which determines the future of the business. His powers are unlimited and his decisions are final. He is, in fact, the sole organiser, manager, controller and master of his business. The sole-trader must, however, be a person competent to enter into a contract.

  18. Sole Trading Concerns

    Sole trading is the oldest and simplest form of business organization. It is a business organization, in which an individual contributes the whole amount of capital, manages the business himself or herself, bears all the risks alone, enjoys all the profits and suffers all the loss. He alone plays a role of manager, owner, controller, decision ...

  19. Define a Sole Trading Concern. Explain Its Merits and Demerits

    Definition: - "The sole proprietorship is an informal type of business owned by one person". (Prof. James L. Lundy) Merits of Sole Trading Concern are as Follows: 1. Easy Formation: - It is very easy to establish Sole Trading Concern, because very few legal formalities are involved in formation. This business can be started without getting ...

  20. Features of sole trading concern.

    Solution. "The sole proprietorship is an informal type of business owned by one person". (Prof. James L. Lundy). Features of sole trading concern are as follows: Minimum Government Regulations: There are minimum government regulations on the activities of a sole trader. Proprietary concerns are not governed by any separate law and are easy ...

  21. Explain the following term/concept: Sole Trading Concern

    It is a form of business organization which is owned, managed, and controlled by one person. It need not be registered. It does not have a legal status i.e. It does not have a stable life. Maximum secrecy can be maintained in Sole Trading's concern.

  22. Sole Trading Concern

    The registration and renewal of a sole trading concern in Nepal is governed by the Private Firm Registration Act, 2014. The following are the steps involved in registering a sole trading concern in Nepal: Choose a unique business name. The name of the business must not be the same as the name of any other registered business in Nepal.

  23. State the features of sole trading concern.

    Single ownership: The sole trader is a single owner of the organization. The sole trader owns all the assets and property of the business. The sole trading concern is often referred (said) as "one man show" 2. Unlimited liability: The liability of the sole trader is unlimited. This means he is alone responsible for all the risks and debts ...