Start Your Business

Is Sole Proprietorship Right for You?

Is Sole Proprietorship Right for You?

About 80 percent of small businesses in the United States have just one employee: the owner.1 While there are certainly advantages to running your own shop, such as total control and flexibility, there’s plenty of risk as well.

Mike Davidov, owner and managing principal of Davidoff & Associates CPAs in Alexandria, Virginia, has more than 20 years of accounting experience. He specializes in helping small business owners grow their bottom line, stay compliant with tax requirements and develop efficiency strategies. As a small business owner himself, Mike offers the following advice and tips to sole proprietors.

Q: What are some of the main business advantages to sole proprietorship?

Mike: First, it's easy to form and maintain. All owners need to do is come up with the name and then register with their local authority, such as a city or a county. There are no hoops to jump through. The same goes for exit strategy. Sole proprietors can simply cease operations, or sell or gift the business.

Sole proprietors can also react much faster than larger companies to demand fluctuations, new trends, new technologies and legislation. Many of my clients can easily reorient themselves if one product line doesn’t sell well or falls out of demand.

Q: What is the biggest piece of financial advice you’d give to someone just starting out?

Mike: One important action is to maintain two separate bank accounts: One strictly for business and one for personal expenses. Not doing so will make it difficult to prepare tax returns. Separating expenses can be very painful, especially if you do not remember if expenses were personal, business or partially one or the other.

It’s also important to keep separate accounts to be able to generate correct financial reports, which show an owner how their business is performing. Owners may be able to reallocate their funding, cut costs or invest in a different product line. Having commingled funds may lead to inaccurate financial reports, and result in decisions being made based on bad data.

Q: What other risk factors should sole proprietors be aware of?

Mike: Being unincorporated exposes the business owner to litigation and lawsuits. If a customer or another third party sues a sole proprietor, then there is really no protection. Personal assets will be available to satisfy any claims, whereas in a corporate structure, personal assets are generally protected.

In addition, while filing tax returns as a sole proprietor is relatively easy, the actual tax burden is less-than-ideal. An owner will end up paying more tax than certain corporation owners or shareholders because some deductions or business credits are simply not available. There’s a requirement to pay self-employment tax in addition to income tax. It may mean a difference of up to tens of thousands of dollars in taxes owed, depending on revenue size.

Q: What should owners keep in mind about the reality of being their own boss?

Mike: With no one to report to, and no partners to consult with, business owners have complete freedom to make decisions. Sole proprietors can generally control their schedules and set aside time during work days for non-business matters, errands and vacations without having to ask permission.

While making solo decisions is great, sometimes being overconfident or too risk averse can damage growth prospects or, even worse, jeopardize the ability to sustain a business. Sole proprietors may not have a built-in system of checks and balances from outside opinions to help steer them in the right direction.

That being said, many standalone business owners become jacks-of-all-trades by engaging in accounting, marketing or technology, even if they aren’t a trained expert in any of those fields. This experience can be useful for years to come.

Even when you’re solo…

…you don’t need to feel like you’re running your business alone. SunTrust offers solutions to help manage your finances so that you can dedicate your time to running your business. Visit our Small Business Best Practices Guide for more financial management tips.

1 “Frequently Asked Questions,” June 2016, U.S. Small Business Association Office of Advocacy 

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.


Investment and Insurance Products:

Are Not FDIC or any other Government Agency Insured   Are Not Bank Guaranteed  May Lose Value 

© 2018 SunTrust Banks, Inc

equal housing logoSunTrust Bank is an Equal Housing Lender. Member FDIC

equal housing logoEqual Housing Lender. SunTrust Mortgage, Inc

SunTrust, SunTrust Mortgage, SunTrust PortfolioView, SunTrust Robinson Humphrey, SunTrust Premier Program, AMC Pinnacle, AMC Premier, Access 3, Signature Advantage Brokerage, Custom Choice Loan and SunTrust SummitView are federally registered service marks of SunTrust Banks, Inc. All other trademarks are the property of their respective owners.

Services provided by the following affiliates of SunTrust Banks, Inc.: Banking products and services are provided by SunTrust Bank, Member FDIC. Trust and investment management services are provided by SunTrust Bank, SunTrust Delaware Trust Company and SunTrust Banks Trust Company (Cayman) Limited. Securities, brokerage accounts and insurance (including annuities) are offered by SunTrust Investment Services, Inc., a SEC registered broker-dealer, member FINRA, SIPC, and a licensed insurance agency. Investment advisory services are offered by SunTrust Advisory Services, Inc., a SEC registered adviser. GFO Advisory Services, LLC is a SEC registered investment adviser that provides investment advisory services to a group of private investment funds and other non-investment advisory services to affiliates. Mortgage products and services are provided by SunTrust Mortgage, Inc.

SunTrust Mortgage, Inc. - NMLS #2915, 901 Semmes Avenue, Richmond, VA 23224, 1-800-634-7928. CA: licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, IL: Illinois Residential Mortgage Licensee #MB-989, Department of Financial and Professional Regulation, 100 W. Randolph, Suite 900, Chicago, IL 60601, 1-888-473-4858, MA: Mortgage Lender license #-ML-2915, NJ: Mortgage Banker License - New Jersey Department of Banking and Insurance, NY: Licensed Mortgage Banker—NYS Department of Financial Services, and RI: Rhode Island Licensed Lender.

"SunTrust Advisors" may be officers and/or associated persons of the following affiliates of SunTrust Banks, Inc.: SunTrust Bank, our commercial bank, which provides banking, trust and asset management services; SunTrust Investment Services, Inc., a registered broker-dealer, which is a member of FINRA and SIPC, and a licensed insurance agency, and which provides securities, annuities and life insurance products; SunTrust Advisory Services, Inc., a SEC registered investment adviser which provides Investment Advisory services.

SunTrust Private Wealth Management, International Wealth Management, Business Owner Specialty Group, Sports and Entertainment Group, and Legal and Medical Specialty Groups and GenSpring are marketing names used by SunTrust Bank, SunTrust Banks Trust Company (Cayman) Limited, SunTrust Delaware Trust Company, SunTrust Investment Services, Inc., and SunTrust Advisory Services, Inc.

SunTrust Bank and its affiliates do not accept fiduciary responsibility for all banking and investment account types offered. Please consult with your SunTrust representative to determine whether SunTrust and its affiliates have agreed to accept fiduciary responsibility for your account(s) and if you have completed the documentation necessary to establish a fiduciary relationship with SunTrust Bank or an affiliate. Additional information regarding account types and important disclosures may be found at

SunTrust Robinson Humphrey is the trade name for the corporate and investment banking services of SunTrust Banks, Inc. and its subsidiaries, including SunTrust Robinson Humphrey, Inc., member FINRA and SIPC.