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Thousands of new businesses open in the United States every single day, many of which are micro businesses. This kind of business, also called a micro enterprise, classifies businesses with fewer than 10 employees. Microbusinesses play a substantial role in the United States economy. In fact, micro businesses make up nearly 75% of private-sector employers and employ over 10% of the private-sector workforce. So what is a micro business? In this article, we’re going to put these tiny businesses under a microscope. Read on to learn what they are, how they differ from a small business, and the pros and cons of starting a microenterprise.
What is a Micro Business?
There is no definitive definition of a microenterprise, so the use varies state by state. According to the Small Business Administration, a microbusiness is simply a business with 9 or fewer employees, including the owner. Some states also attach revenue figures to the definition (for example, businesses earning less than $250,000 a year).
How Does a Microenterprise Work?
A microenterprise operates like a small business. In terms of structure, they are usually:
- Legally structured as a sole proprietorship, partnership, or LLC, (though some may choose to incorporate)
- Subject to relevant taxes (mostly dependent on their industry and legal structure) such as income taxes, payroll taxes, sales taxes, and property taxes.
- Need all relevant permits and licenses
Microenterprises come in all shapes and sizes, just like any other type of business. The owner or owners determine the details. Most micro business ventures are run entirely by an individual entrepreneur. Some call these individuals “solopreneurs” because they alone handle everything. This includes sales, marketing, finance, operations, accounting, R&D, and more.
Micro Business vs Small Business
So, what is the difference between a microbusiness and a small business? Think of small business as a category, and micro business as a subset of that category. Both are considered small businesses, but not every small business is a micro business.
Small businesses also have their own set of legal requirements. In general, a micro business becomes a small business once it has 10 or more employees and/or annual revenue exceeding $250,000 per year.
Types of Micro Businesses
The types of micro businesses vary, but commonly include:
This category of micro businesses has experienced explosive growth in the last several years. Uber drivers, most hairstylists, virtual assistants, Fiverr and UpWork freelancers, social media influencers, writers, etc. fall into this category of micro businesses.
The brick-and-mortar subcategory includes any establishment that operates in a customer-facing environment with fewer than 10 employees. This can include dry cleaners, tailors, hair salons, barbershops, local convenience stores, flower stands, and more.
Many small eCommerce companies (like Etsy sellers) would fall under the microbusiness category. This is because most operate alone or with a handful of employees who help with packaging, shipping, manufacturing, for instance.
Examples of a Micro Business
Examples of a micro business include writers, life coaches, personal trainers, web designers, graphic designers, app developers, Uber drivers, etc. are each a type of microbusiness. The definition can also include some brick-and-mortar businesses such as small boutiques, coffee shops, family-run restaurants, laundromats, etc. Depending on the number of employees, all of these small business examples may fall under the definition of a micro business.
Pros and Cons of a Micro Enterprise
If you’re considering starting your own micro enterprise, a list of pros and cons may be helpful to you. Let’s get into those next.
The pros of running a microbusiness are:
Flexibility and adaptability
A major benefit to running a micro enterprise is that your business plan, strategy, and product offerings can all quickly adapt to meet the needs of the moment. Larger enterprises have to consider their chain of command before making major decisions. This naturally makes them slower to adapt and change.
On a similar note, running your micro enterprise gives you complete control over your business. You can decide which customers you do or don’t want to work with and make choices about how the enterprise fits into your lifestyle. Whether you’re running a small team or a one-man-show, you play a major role in making all the company’s decisions.
On the other hand, the cons of running a microenterprise can include:
Securing small business financing is often tough for owners of a micro enterprise. For example, if your business is a sole proprietorship, partnership, or single member LLC, lenders will usually consider your personal credit for a loan approval. This can make it harder to get funding in the amount you want and need.
When you handle everything yourself, it can also be hard to find the time to connect with and earn the trust of potential customers. There are so many pressing considerations for microenterprise owners that can create a real barrier to success and growth.
How Do Taxes Work for a Microbusiness?
The tax obligations for a microbusiness will vary depending on a few factors like the business legal structure and industry. The obligations for your existing or future microbusiness are unique and it is best to consult with a tax professional to determine your liability. Here are a few things to consider:
- Structure and personal liability: If your micro enterprise is an LLC or corporation, you can expect more complicated paperwork and tax filings, but you will experience more protections from personal liability in return.
- Sales tax: If your state has a sales tax, your business is likely expected to collect, file, and remit it quarterly.
- Quarterly filings: Many microbusinesses are expected to file income taxes with the IRS quarterly instead of annually.
- Expenses: As a business, there are many expenses you can likely deduct to reduce your taxable income.
While there is no official definition, a micro business is most commonly any business with fewer than 10 employees. While micro enterprise owners are small business owners, lumping all small businesses into one category makes it easy to miss the unique needs of micro businesses. A micro enterprise/solopreneur will meet different challenges and overcome different obstacles than a business with closer to 50 employees, for example. All that matters is having the right knowledge to make the best decisions for your business.