If a sole proprietor’s expenses exceeded his income, the result would be a net operating loss. Because this person is a sole proprietor, he would be personally responsible for any debts that his business incurred. This is one of the drawbacks of forming a business as a sole proprietor.
When a sole proprietor’s expenses are greater than his income, he is losing money. This is a more serious problem for a sole proprietor than it would be for a corporation. In a corporation, the owners are insulated from the problems of the business. If the business goes broke, the owners themselves do not have to pick up the expenses. The only money that the owners stand to lose is whatever money they actually put into the business. In a sole proprietorship, the owner can be forced to dip into his own personal assets to cover the business’s losses. This is one thing that can result if a sole proprietor’s expenses exceed his income.