DECA Hospitality and Tourism Cluster Practice Exam

What is a common challenge faced by sole proprietorships?

1. High compliance restrictions.

2. Shared profits with partners.

3. Limited access to capital.

4. Frequent changes in ownership structure.

The correct answer is: Limited access to capital.

Limited access to capital is a common challenge faced by sole proprietorships because these businesses typically rely on the personal finances of the owner or smaller loans, rather than larger investments from multiple partners or shareholders. Sole proprietors often have difficulty securing funding from banks or investors since the business is closely tied to the individual’s creditworthiness and financial status. This restricted access to funding can hinder growth and expansion opportunities, making it a significant hurdle for sole proprietorships. In contrast, high compliance restrictions are generally applicable to corporations rather than sole proprietorships, which enjoy simpler regulatory requirements. Shared profits with partners is not relevant in this case since sole proprietorships do not have partners and keep all profits. Frequent changes in ownership structure typically apply more to larger entities or those experiencing significant growth and transitions, rather than sole proprietorships, which are characterized by their singular ownership.