Operations of a Sole Proprietorship

A sole proprietorship is owned and operated by a single individual. Because sole proprietorships are so closely held, their operations tend to be tightly tied to the strengths, skills and personalities of their owners. Sole proprietorships are as diverse as the individuals who own and operate them. There is no single right way to operate a sole proprietorship business. However, successful sole proprietors understand their capabilities and limitations and enlist help in areas where it is needed to supplement their skill sets.

A sole proprietor's business model is based on providing products and services that he can successfully deliver to customers. These products and services may be based on the owner's skills and passions or on an open niche that he perceives in the marketplace that he believes he can fill. For example, a sole proprietor who is skilled at repairing musical instruments might build a business around this particular passion, and a sole proprietor with a strong back and a pickup truck might build a business around providing hauling services.

Decisions in a sole proprietorship can be made exclusively by the owner. However, a wise sole proprietor understands the limits of her knowledge and experience and enlists help in areas where trained professionals would do a better job, such as legal or accounting services. A sole proprietor may hire a manager to help with company decision making, but she is under no obligation to listen to this input if she has a different opinion.

The financial operations of a sole proprietorship are inextricably linked to the personal finances of its owner. When a sole proprietorship makes a profit, it is recorded as the owner's personal income, and when a sole proprietorship loses money, the owner sustains a personal financial loss. If a sole proprietorship needs money, the lending institutions he approaches use his personal assets and credit score as criteria. A sole proprietor is not legally required to maintain a separate business bank account. However, keeping such an account makes it easier to keep track of business expenses versus personal expenditures.

Many sole proprietors eventually hire employees so the business isn't limited by the owner's personal time and individual capabilities. To manage employees effectively and build a business that makes use of their relevant skills, a sole proprietor must develop systems for transferring knowledge and efficiently completing work. In addition, a sole proprietor who is an effective manager gives employees enough responsibility and decision making power for them to feel engaged and invested.