Economics - QUESTION 1 Most small businesses in Botswana...

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QUESTION 1 Most small businesses in Botswana operate as Sole trader and Partnership Explain advantages and disadvantages of such business units SOLE TRADER OR SOLE PROPRIETORSHIP According to Miss Beesly, a Marketing Communications Consultant stated in February 2013 that a sole proprietorship/ sole trader is basically an unincorporated business owned and run by one individual, with no division between the business and its owner. As a sole proprietor, you are entitled to all profits and are responsible for all debts, losses and liabilities the business may run into. ADVANTAGES AND DISADVANTAGES OF SOLE PROPRIETOR According to Korchak (2013) setting up a sole proprietorship is the most popular way in most countries. Most people wanting to venture into the business world begin with it. Starting this business venture has advantages and disadvantages attached to them and they are as follows; Advantages of sole trader Control - As a sole trader you have full control of your business “ you are your own boss meaning there are no pushy investors telling you what or what not to do because the future of your business lies entirely in your hands so you grow it exactly as you choose. Operational flexibility - Because the sole trader is answerable to themselves, they make decisions swiftly and are able to implement them quickly in response to rapid changes in the market. This gives them an advantage on the customers’ side as they become sensitive to customer needs and are able to react decisively to them. Profit Retention - As a sole trader you retain all the profits made in the business rather than having to share them with investors. That is why many times sole traders do not employ anyone thus keeping costs low maximizing profit. Privacy - While anyone can inspect limited company’s published accounts, a sole trader needs not to put them out in the open giving them an advantage over competitors because less or no information is leaked on how the trader is faring and identifying the success of the business.
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Disadvantages of sole trader Personal liability - Sole traders are not recognized as separate business entity meaning its liabilities and debts are the sole traders’ liability and debts. If the business does not succeed and runs into so many debts not only does the sole trader lose or pay the debts from their income, if the debt is not fully paid it will extend to their assets whether or not they are connected to the business. The trader is also at risk of losing their home now facing potential bankruptcy. Limited access to finance - Raising capital for a sole trader can be very difficult because most lenders, for example, banks prefer the greater accounting transparency which sole traders mostly do not have making it risky to lend larger sums of money even if the sole trader takes an advanced loan. Most long-term finance will not be available for sole traders as such business units tend not to survive.
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