Accounting
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How to Create a Profit and Loss Statement in 5 Simple Steps
A concise exploration of the significance of a Profit and Loss (P&L) statement for small businesses and its essential role in financial management.
1 Dec, 2023
This detailed guide offers everything you need to know about setting up, managing, and potentially transitioning from a sole proprietorship in Singapore.
A sole proprietorship is the simplest and most common business structure in Singapore, making up 75% of all registered businesses. As a sole proprietor, you have complete responsibility for all aspects of your business, as there is no legal distinction between the business and the owner. While easy to set up and manage, it also carries greater personal risks.
Sole proprietorships suit simple business ideas. By following this comprehensive guide,
You will understand the following:
An individual proprietorship is the simplest framework for launching a small business. The owner faces no legal distinction between themselves and the company. This differs from a PLC (Private Limited Company) or corporation, where the business exists as a separate legal entity.
From online sellers to accountants, mechanics to artists, this accessible legal formation opens doors for all types of entrepreneurs across all industries. With a Single proprietorship:
Registering a Single proprietorship with the Accounting & Corporate Regulatory Authority (ACRA) enables you to operate your business in Singapore legally. The key requirements include:
As the sole owner, you have full control over your firm's decisions and get to enjoy all the profits. However, you also bear unlimited liability for all debts and losses incurred.
Single proprietorships offer many rewards that make them a popular choice for first-time entrepreneurs, including:
As per the Business Ownership Survey, over half of sole proprietors tap personal savings to fund their business ventures. Some also qualify for government funding programs like the Startup SG Founder scheme, which provides mentorship and startup capital up to $50K to first-time entrepreneurs.
To remain legally compliant after registration, sole proprietors must:
Audits are not mandatory, but having clean books facilitates easy tax filing, financing, and potential exit strategies.
Consider hiring an external accountant to ensure compliance with accounting standards. The average cost of basic bookkeeping services starts from $100 per month, while an independent audit typically ranges from $2000 based on firm size.
Use affordable online accounting software like Jaz to digitize invoicing, payments tracking, bank reconciliation, and produce regular profit and loss statements. This helps avoid missing any compliance regulations - penalties can be steep for breaches.
Staying on top of compliance obligations is easier if you set reminders for renewal deadlines, have a digital filing system, and leverage technology to automate processes. This reduces the risk of non-compliance penalties. Consider getting a membership with one of over 140 Small and medium Business Centres under Enterprise Singapore, which provides advice on staying compliant.
While simple to set up, single proprietorships carry greater business risks than incorporation options like private limited companies:
Hence, single proprietorship suits businesses with lower risks. However, once you plan for growth or take on higher risks, consider converting to a private limited firm for liability protection.
Like any business structure, individual proprietorships come packed with both advantages and disadvantages. Weigh these carefully as you determine if this model aligns with your entrepreneurial aspirations and risk tolerance.
With no boards of directors, shareholders, or partners to answer to, sole proprietors hold total reign to run their companies as they wish. For free-spirited entrepreneurs who shun bureaucracy and outside voices, this autonomy fuels the passion and drive to hustle even harder.
Unlimited liability means creditors can seize personal assets like houses, cars, investment accounts, and more if they are unable to collect from the company. Additionally, Solopreneurship
receive no protection under corporate veil laws.
Banks seldom offer small business loans or credit cards to unincorporated entities either. Investor dollars rarely flow into Individual proprietorships lacking formal shares to offer in return.
Beyond liability protection, here are some other key differences in running a single proprietorship vs a private limited company in Singapore:
Attracting investors is easier with a company, given the perceptions of credibility, financial transparency, and exit pathways. Most government grants and crowdfunding platforms also require formal business structures.
However, bootstrapped sole proprietors can still access smaller funding amounts from non-traditional lenders like Kickstarter, which accepts non-incorporated entities. But having your ducks in a row with proper bookkeeping and the ability to demonstrate traction helps, irrespective of structure.
While banks allow personal name business accounts for Single proprietorships, company accounts project financial legitimacy, especially when dealing internationally.
However, digital banks like Nium that offer multi-currency business wallets are lowering barriers for sole proprietors in enabling online commerce across borders.
Qualifying for work visas like EP passes is easier with a company. Sole proprietors need to justify proving specialist skills not readily available locally. Hence, most avoid the lengthy justification process and hire local workers instead.
Special tax exemptions, subsidies, and cash payout schemes are mostly offered only to Singapore-registered entities due to tighter financial reporting requirements. E.g., only companies qualify for the 250% tax deduction on international marketing expenses under IE Singapore.
Many capability development programs like the Productivity Solutions Grant (up to 70% subsidies for tools technology adoption) and 90% SME Working Capital Loan are open to eligible sole proprietors.
IP assets, when self-created as a sole proprietor, are trickier to establish ownership rights over legally compared to assets produced under a company. Hence, converting before developing key IP can avoid issues later, especially if seeking to license or franchise.
For converting to a private limited company:
Seeking help from an incorporation specialist streamlines this process and ensures compliance with all dissolution formalities to avoid penalties.
Standard conversion costs range from $1000 - $3000 depending on assets and professional services engaged. Factor increased annual compliance costs, too, post-conversion. For instance, private limited companies must file annual returns and have financial audits.
To close your single proprietorship, file cessation papers with ACRA and cancel your permits/licenses. Ensure all dues are cleared first.
To protect yourself from future claims, publish a 28-day winding-up notice in a national paper and notify known creditors via registered mail.
This gives them time to submit any unpaid dues lest it complicates reopening a business in the future since Singapore forbids owners with outstanding debts from reconstituting. It takes at least 5 years before they regain this right.
Legally, you must retain accounting records and contracts for up to 5-7 years post-cessation, even if you are no longer operating the individual proprietorship. Offsite backup of digital records eases this compliance.
As a small business owner or accountant, you have better things to do than wrestle with spreadsheets. Managing finances, cash flows, and compliance should be simple and manageable. That's why Jaz exists.
Jaz is the all-in-one accounting solution built to simplify and automate your most complex accounting tasks like invoices, bills, bank reconciliations, payments, and more so you can get back to growing your business or serving more clients.
Book a demo now and take control of your financial operations with Jaz.
Some key benefits include low setup costs, easy tax preparation with pass-through personal taxation, full control over decisions, and privacy since fewer public financial disclosures are required.
Major disadvantages are unlimited personal liability, difficulty raising external funds beyond personal sources, and lack of business continuity after the owner's death.
Key compliance rules include annual tax filing, renewing permits/licenses, proper bookkeeping, preparing financial statements, making mandatory CPF contributions for employees, and staying on top of other regulatory obligations.
Unlike an incorporated private limited, sole proprietors have unlimited liability, simpler tax and compliance requirements, easier ownership transfer, and more difficulties attracting investors and external financing.
To shut your Individual proprietorship, clear outstanding dues, cancel permits/licenses, file cessation papers with ACRA, publish a 28-day winding-up notice in a newspaper, notify creditors via registered mail,l and retain accounting records/contracts for 5-7 years as legally required.
