Disadvantages or Limitations of a Sole Trading Firm

(1) Limited capital:

The capital of sole trader is limited. He can depend only on his own savings and borrowings on the personal properties. Hence, the capacity of one person to raise the capital is limited and therefore he cannot expand his business.

(2) Limited managerial skill:

As the sole trader has to look into each and every aspect of his business, the managerial skill will be limited. This is because, such an individual may not be an expert in all matters and sometimes his decisions may, not be well balanced.

(3) Uneconomic size:

Because of the limitations of finance and managerial skills the sole proprietorship works on a small scale. Therefore, a sole trader cannot get the economies of large-scale operations.

(4) Unlimited liability:

As the private assets of the sole trader are also attached to the business it induces a fear of loss of property in him and discourages the expansion of business.

(5) Limited supervision:

A sole trader cannot keep an eye on all the departments and tackle all his customers. Hence, smooth working becomes difficult.

(6) Lack of consultations:

The sole trader has no one else to consult before taking decisions. If his decisions go wrong, he has to suffer heavy losses.

(7) Sack of stability:

The life of this type of business is limited and unstable. It solely depends on the life of the proprietor.

(8) Lack of specialisation:

Due to the small size of the business, introduction of division of labour becomes impossible. Hence, advantages of specialisation are not found.

(9) Risk of loss:

As the sole trader is the sole owner of his business, he has to bear all the losses of the business.