As a sole proprietor, you take on many inherent risks alone. There is nobody else to share the responsibilities, and any results of economic rewards or challenges would be only yours. It’s not easy to run a solo enterprise, but Gov Doc Filing makes it easier by providing the forms needed to apply for an entity and offer fast, simple, and secure processing through their simplified sole proprietor, S-Corp, C-Corp, and LLC forms online. They also provide forms to apply for an Employer Identification Number if needed.
Top Risks of a Sole Proprietor
- Limited Earnings – There are only you and a limited number of hours in a day. You also need to eat and rest. Even with hired help, the majority of the work lands on you. Your earnings are limited on how much you are able to accomplish each day. It is common for people with financial problems not to be clear about what they are pursuing (absence of goals) and, if they have them, they are vague, unrealistic or incompatible with their budget. What is not measured is not controlled.
- Poor Credit – When deciding to extend credit as a sole proprietor, lenders take your personal finances into account. All your personal spending habits have an impact on your ability to gain credit. It is important that you maintain an excellent credit rating as a sole business owner. It is associated with the possibility of defaults occurring in the established time and manner, which may involve loss of principal and interest, a decrease of cash flow, generation of expenses associated with the recovery processes, etc.
- Financial Errors – In addition to completing work for your business, you must also carefully monitor your finances. As a sole proprietor, managing your own books can be risky. Consider hiring an accountant or make it a habit to enter your income and expenses in a daily log or spreadsheet.
- Being Sued – A great benefit of incorporating your business is the layer of protection it provides. It is possible to lose all your personal property if you are sued.
- High Tax Bills – Although most expenses related to your business can be deducted on your income taxes, your tax burden may be increased from the self-employment taxes you must pay. Your habit of saving is deficient or nonexistent, you do not pay your credit cards, pay loans, understand how normal to acquire everything on credit, as well as paying delinquencies for overdrafts and late payments.
Before wanting to make any comment about it, it is necessary to know the variable and the risk concept with which we live in a day-to-day in a financial institution. In very simple terms there is risk in any situation where we do not know exactly what will happen in the future. Elsewhere Risk is synonymous with Uncertainty, it is the difficulty of being able to predict what will happen. Risk is part of life itself, it is up to us to manage it by becoming aware of the situations that lead us to it and applying the corrective measures to avoid them, as long as it is within our reach.