A sole trader whose business is expanding feels the need for additional capital and managerial assisstance. Should he employ an assitant or take a partner?

           A sole trader may want to expand his business at some point of time. At that time he may face the problem of  shortage of capital and managerial skills. Two alternatives are available to him for solving this problem.

 1. To Employ a paid assistant

 2. To admit one or more partners

 

  Employment of Paid Assistant

   When the sole trader employs a paid assistant, he has the following advantages and disadvantages:

Advantages

a) Division of work: An assistant can be appointed whose expertise can be used for the benefit of the business. The sole trader can delegate some of his work to the assistant and can devote his time and attention to crucial matters of business.

b) No share in profits: The assistant is paid a fixed salary. The assistant is not given a share in profits.

c) Complete control: The assistant has no right to interfere in decision making. So, the sole trader retains full control over the business.

d) Secrecy: The sole trader is not expected to share the secrets with his assistant.

e) Easy to dismiss: The sole trader can remove his assistant as and when he likes.

Disadvantages

a) Lack of Motivation: The assistant may not receive sufficient incentive to feel motivated to work. So, he may not be as sincere and careful as the trader himself.

b) Lack of responsibility: The assistant is not responsible for the losses incurred in the business. The risk of failure has to be borne by the trader himself. It is very difficult to appoint the right person for employment. If a wrong person is appointed, he may create new problems.

c) The problem of capital: The employment of an assistant does not solve the problem of finance. The assistant does not bring any capital with him. His employment does not add to the borrowing capacity of the business.

d) Competition: The assistant may commit some mistakes and cause a loss. He may also give up his job-creating serious problem of administration. He may set up a competitive business after leaving his service.

Admission of a partner

Advantages

a) Availability of capital: The new partner brings some capital, as a result, the problem of shortage of funds can be solved. Admission of a partner also increases the goodwill and borrowing capacity of the firm.

b) Division of work: The work can be divided between the sole trader and the partner on the basis of knowledge and skills. The advice and expertise of the partner are available for taking decisions.

c) Motivation: A partner gets a share in profits and, therefore, he has the motivation to work hard for the success of the business.

d) Reduced risk: Each partner shares the loss and liability of the business. As a result, the risk of the sole trader is reduced.

Disadvantages

a) Division of profit: The sole trader has to give a share of profit to the partner.

b) Loss of freedom: The sole trader can not take decisions on his own without consulting his partner. Freedom of action and complete control of one individual in decision making are lost. As a result, there may be a delay in taking decisions.

c) Lack of secrecy: When a partner is admitted, business secrets have to be shared with him. He may pass on the secrets when relations among the partners are not good.

d) Source of disputes: The existence of two or more partners with equal authority is often a source of disagreement. Such differences among the partners affect the efficiency and continuity of business.

   So, both alternatives have their own advantages and disadvantages. In case, the sole trader can himself arrange more capital, it is better to appoint a qualified and experienced assistant to share the managerial workload. If this is not possible, it may be advisable to take a partner who can contribute both capital and managerial talent.