Advantages and Disadvantages of Being a Sole Trader

Small businesses make up an overwhelming 97.2% of all Australian businesses, with 62.2% of the economy made up of self-employed sole traders.

If you’re thinking about striking out on your own, this guide is designed to help put things into perspective by discussing the advantages and disadvantages of being a sole trader in Australia.

Advantages of being a sole trader

There are plenty of reasons why so many people choose to go it alone and begin their own self-employed business. Here are just a few of them.

You are your own boss

One of the most appealing aspects of being a sole trader is having total control over your business. You make the decisions, set your own schedule, and shape your work the way you want. There’s no need to consult a board or seek approval from partners — you have the freedom to make decisions, move quickly, and pivot as needed.

Getting set up is simple

Starting out as a sole trader is one of the easiest and most affordable ways to go into business.

1. Choose your business name: Decide whether you’ll trade under your own name or create a separate business name. If you want to use a unique business name instead of your own name, you will need to register it with the Australian Securities and Investment Commission (ASIC).
2. Apply for an Australian Business Number (ABN): Apply for an ABN online through the Australian Business Register (ABR) for free. You’ll need your ABN to invoice clients and claim business-related tax deductions.
3. Register for Goods and Services Tax (GST) if required: You only need to register for GST if your annual turnover is $75,000 or more. You can register for GST at the same time as you apply for your ABN.
4. Check if you need any licences or permits: Depending on the type of business you run, you might need specific licences, permits, or registrations (for example, for food handling or construction). You can use the Australian Business Licence and Information Service (ABLIS) to check what applies to you.
5. Consider business insurance: Before you officially start trading, you may wish to consider business insurance to help protect your fledgling business from costly claims.

Running costs are relatively low

One of the major advantages of being a sole trader is that startup and ongoing costs are minimal.  Registering your business name does come with fees, but these are relatively inexpensive.

Your day-to-day expenses should also be generally lower. You can start your business from home, use basic accounting software to begin with, and then gradually scale your operations as the business grows.

You keep all the profits

Lower costs mean more of your revenue can go directly back into your business, helping you maintain financial flexibility while you establish yourself.

As a sole trader, every dollar you earn after expenses is yours to keep. There are no shareholders to pay and no need to split profits with business partners. This direct link between your effort and your earnings can be highly motivating and rewarding: the harder you work, the greater your potential income.

You have flexible working hours

Being a sole trader gives you the freedom to set your own schedule. You can work the hours that suit your lifestyle, whether that means early mornings, evenings or part-time while balancing other commitments.

This flexibility allows you to adapt your business to seasonal demand. It’s particularly valuable for freelancers, consultants and tradespeople who want control over when and how they work.

Disadvantages of being a sole trader

It would be unfair not to discuss the cons of being a sole trader. While there are plenty of benefits, it’s a good idea to also weigh the potential disadvantages.

You have to shoulder all the responsibilities

Running a business on your own means wearing many hats. from marketing and sales to accounting and customer service. While this can be empowering, it can sometimes feel overwhelming and may mean you end up working long days.

You’re liable for any debts

As a sole trader, there’s no legal distinction between you and your business. This means you’re personally responsible for any debts or losses the business incurs. If something goes wrong, your personal assets (such as savings or property) could be at risk. It’s important to manage your finances carefully and consider insurance or other protections where possible.

You must be disciplined

Being your own boss comes with freedom, but it also requires a high level of self-discipline. Unlike in a traditional job, there’s no manager checking in or fixed schedule to keep you on track. This means you need to be proactive about setting goals, managing your time and staying motivated.

Tips for sole trader success

Running your own business as a sole trader comes with plenty of freedom, but it also means you’re responsible for keeping things running smoothly. Here are some practical tips to help you build a sustainable, successful business.

1. Protect your finances and assets

As discussed above, a sole trader’s personal assets could be at risk if things go wrong. Protect yourself by keeping your personal and business finances separate, maintaining good records, and setting aside money for tax and superannuation.

It’s also worth considering insurance such as Public Liability insurance or Professional Indemnity insurance to help protect your livelihood. If an unexpected incident occurs, the right insurance can help to safeguard your assets, income and reputation.

2. Be cyber aware

Even small businesses can become the victims of cybercrime. You can help to protect your business from cyberattacks and data breaches by following good cybersecurity practices. Use strong passwords, enable two-factor authentication, back up your data regularly and be cautious of suspicious emails or messages. If you handle client data or online payments, make sure your systems are secure and compliant with privacy laws.

3. Pay yourself

It can be tempting to reinvest every dollar you earn back into your business, especially in the early days. But it’s important to pay yourself a regular wage to ensure your hard work is rewarded and your personal finances remain stable. Set up a system where you transfer a set amount from your business account to your personal account each week or month. If you treat it like any other expense, this helps you budget effectively and gives you a clear picture of your business’s true profit.

4. Monitor cash flow

Cash flow is the lifeblood of any small business. Keep a close eye on the money coming in and going out to avoid nasty surprises. Use accounting software to track invoices, expenses and payment deadlines, and regularly review your bank statements to stay on top of things. Having a clear picture of your cash flow helps you make informed decisions, plan for tax time and ensure you always have enough to cover upcoming expenses.

Are you ready to start your own business?

Beginning your own business is an exciting step forward, and can be a hugely rewarding and fulfilling journey in itself.

If you’re ready to strike out on your own, then make sure you consider what kinds of insurance you may need to help safeguard your business.

BizCover has been helping small business owners – including sole traders just like you – get their insurance sorted since 2008. From accountants to mobile coffee vans, freelance consultants and independent tradespeople, BizCover can help you find business insurance to suit your needs. Get multiple quotes from some of Australia’s leading insurance providers and get covered in minutes.