Accounting – 5.1 Sole traders | e-Consult
5.1 Sole traders (1 questions)
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Trading Business - Advantages:
- Established Market: The market for goods is generally well-established and understood.
- Potential for High Profit Margins: If goods are sold at a good price relative to their cost, profit margins can be significant.
- Inventory as an Asset: Stock can be an asset on the balance sheet.
Trading Business - Disadvantages:
- High Initial Investment: Requires significant capital to purchase inventory.
- Risk of Obsolescence: Goods can become outdated or unsellable.
- Storage Costs: Requires space and associated costs for storing inventory.
- Competition: Often faces strong competition from other traders.
Service Business - Advantages:
- Lower Initial Investment: Typically requires less capital to start (no inventory to purchase).
- Scalability: Easier to scale the business by adding more service providers.
- Less Risk of Obsolescence: Services are not subject to becoming outdated.
Service Business - Disadvantages:
- Difficulty in Standardizing: Quality of service can be harder to control and standardize.
- Reliance on Skilled Labor: Success depends heavily on the skills and expertise of employees.
- Revenue Dependent on Labor Hours: Revenue is directly linked to the time spent providing services.