What are the risks of being a sole trader?
There are a number of risks of being a sole trader – let’s take a look at the most prominent ones and what they could mean for your business and for your personally:
The biggest risk is that there is limitless liability should your business fail. This means that if while you are in business, make losses and suddenly owe other businesses, banks or people lots of money (your “creditors”) they can take your business assets, AND then come after your personal assets (e.g. house, car, personal cash and chattels). They can literally repossess all of your belongings.
The risk of personal repossessions can be completely eliminated by forming a limited company, as the liabilities of companies are ‘limited’ to the company’s possessions – the personal assets of the owners of the business are safe. Talk to us today about forming a company for your business or converting your sole trade to a limited company.
Fines, penalties and interest
If you don’t keep proper books and records, register for tax or make tax filings on time, you could run the risk of getting fines, penalties and late payment interest on tax you owe to the Revenue Commissioners.
Fines and penalties can run into the tens of thousands, and can ultimately kill your business (and yes, before you ask, the Revenue do hire sheriffs to come around to repossess personal assets to cover the debt too).
This risk can be almost completely eliminated if you hire a good accountant and cooperate well with them.
Doing everything yourself
As a sole trader you will quickly find that you have to become a jack of all trades and master of one (the service you provider). Unless you have a budget and are willing to pay for it, you have to do all of the sales, marketing, website creation, accounting, bookkeeping, customer support, human resources – as well as actually working in the business and providing goods or services. There is a real risk that you may spread yourself too thin and find that your business is failing due to any number of reasons such as:
- Few sales
- No brand awareness
- Tax liability problems (as discussed above)
- Cashflow issues
- High staff turnover
- Unhappy clients
Inability to scale or trade in other countries
As a sole trader, you can only really operate your business in Ireland – if you want to grow you will need to hire staff, but this increases your risk of failure and ultimately loss of personal possessions.
You also can’t set up operations in another jurisdiction (like the UK or US) without forming a company in those jurisdictions.
Products related to this post:
Union VAT OSS Registration (in Ireland)€150.00
Union VAT MOSS Registration (in Ireland)€150.00
STARTER PACK: Irish Tax Registrations (for new companies)€450.00 – €1,050.00
non-Union VAT MOSS Registration (in Ireland)€300.00
Sole Trader/Company Director Income Tax Registration (with ROS)€150.00
VAT Registration (in Ireland)€150.00 – €300.00
Business Name Registration (in Ireland)€150.00