Video Transcript: What is a Sole Proprietorship?

Hello, welcome back. We're going to discuss what is a sole proprietorship. Sole  proprietorship is an unincorporated business owned by one person who often is  the owner, and they act as the manager. This form of business organization is  common in small retail stores, service businesses and professional practices  such as law, accounting or medicine. A sole proprietorship is a very common  form of business in a free market economy. So a lot of entrepreneurs are going  to be sole proprietors, right? They're going to develop their own business.  They're going to have their own plan. They're actually an employee of the  business, but they are the manager, and they're kind of running the whole entire  organization. They may have a couple of employees, they may have 10  employees, but they're very hands on and involved of every part of the business. They're not hands off. They're in there operating daily with their employees. So  not only did the owner the manager, they're probably a frontline worker.  Features of sole proprietorship, individual ownership, as we just talked about,  there's no there's no partnership. It's just them. They own the business. It's their  equity. They're their assets, their resources. It's their investment. Sole  management, they run the show. They make the corporate objectives. They  make the goals. They line out all of the job descriptions, unlimited liability, a lot  of downside. If your business fails, you take the brunt. They do have bankruptcy  laws for this. So you're gonna have to, you're gonna be the one taking, you  know, the losses, if there's any losses, so you need to make sure that it's  managed well. You have a good plan, and you're ready to implement that plan  effectively. So your freedom to select whatever business you want, right? So if  you're a sole proprietor, you can find any market niche that you want. You can  exploit that market niche, and then you can try to make sure that you're  profitable, or at least breaking even, so you're not losing money, and you can  pay yourself a salary. There's secrecy. There's nobody to know what your plans  are, because this is just you. You don't have to share it with a partner. You don't  have to let them know. This is my project. These are my ideas. I'm going to  implement them how I see fit the nature of a true entrepreneur, undivided risk.  Again, unlimited liability, undivided risk. It's all on you as a sole proprietor,  suitable for some special forms of business. Again, law, medicine, CPA, firms,  things like that. So merits of sole proprietorship, right? So quick decisions. You  don't have to go through a lot of red tape to make decisions. You don't need  corporate approval. You are the approver. You are the one that makes a  decision. There's no red tape. Benefits of secrecy. If you have a plan and you  want to utilize and implement that plan with your resources and you want to  keep it secret and private. Nobody knows about it. They don't have to know. You can introduce into the market whenever you see fit, because it's your plan. It's  your idea. Direct motivation, am I a self starter? It's my business. I better be  right. So direct motivation. I need to be motivated, inspired, ready to work, have  a vision, and be able to pass that vision along to whoever it is that I decide to 

bring in to my organization. I have personal control. I can implement whatever  I'd like, and I have access to all the information very easily, because it's probably right there on my computer, and I can go get in it whenever I want, because it's  mine. So there's limitations of a sole proprietorship, limited source of capital.  How can I raise money? I don't have the benefits of having a huge, multi million  dollar corporation backing me. So I can go to the bank and get a loan, right? I  can't I probably can't sell stock, because no one's gonna buy it. And if I'm a sole  proprietorship, my assets probably aren't worth very much, right? So how do we  leverage what we have and what resources we have to obtain sources of  capital? How do we fund our business? Unsustainable existence, unstable  existence, I'm sorry, unstable existence, you never know. It's a lot of volatility,  right? There's a lot of boom and there's a lot of bursts, right? And so we have to  make sure that we are ready to make the decisions in case there's a bad  downturn, right? So a lot of times, what happens in sole proprietorships is the  people that they bring in, they develop really close relationships with them. And  when there's a downturn economically and they're not bringing in the revenue  that they once were, they don't want to let anybody go, because they've  developed so many close personal relationships with them, so then they end up  failing in their business because they don't know they won't cut costs,  particularly labor. So that's another reason for the existence of a sole  proprietorship to be unstable, unlimited liability. Again, all of the risk is on you as  a sole proprietor. Unbalanced management. There is nobody to check you.  There are no checks and balances. You are the manager. You are the one  calling the shots. You are the owner.