Micro business Vs. Small Business: What’s the Difference?

Did you recognize that if your company runs on a particularly small scale, you'll actually be considered a micro business (and not technically small business)?

According to the U.S. Small Business Administration’s Office of Advocacy, small business is often defined together that has fewer than 500 employees, with certain exceptions and clarifications. For instance, a book publisher could have up to 1,000 employees and still be considered bookkeeping services for small business. However, there is a category even smaller, and that is a micro business.

So what exactly may be a micro business? The U.S. Small Business Administration defines a micro business as a firm that has between one and nine employees, including the owner. Some common samples of micro business-owners are photographers, event planners, housekeepers, professional service providers, consultants and freelancers in any field, and people working within the gig economy, like Easy store owners, Uber drivers and Airbnb hosts.

Basically, all micro businesses are small businesses — actually, they're a subcategory of small businesses supported the entire number of employees. Therefore, your company are often classified as a micro business if it employs fewer than nine people (while some definitions may cap the amount of employees at six).

Micro businesses have Unique Challenges

This distinction between small business and a micro business essentially means a micro business operates with a really minimal amount of commercial activity, receipts and staff members. And while this distinction might not seem too important, there are variety of things to stay in mind if you are doing operate a micro business.

These are other guidelines which will determine whether your business is micro or small:

If you're self-employed, are a sole proprietor or haven't any employees

If your business requires but $50,000 to start out

If your company doesn't have access to traditional capital loans

If you've got but $250,000 in sales

Since micro business also can be identified as small businesses, the latter are generally classified as for-profit organizations that are independently owned and operated, but don't dominate their local market or industry.

How may be a micro business different from small business? Albeit micro businesses are technically small businesses, differentiating between the 2 is vital to understand when launching and operating small enterprise. Identifying as a micro business owner will assist you better understand the challenges and requirements that you’re likely to face while running your company. These challenges won't be an equivalent as a bigger small business owner’s, which suggests that the solutions are going to be different, too.

Micro businesses comprise a largest segment of the entrepreneurial community — approximately 92 percent of all American businesses are micro businesses. However, these businesses still receive small attention as far as their importance within the overall economic landscape goes.

These companies face certain challenges that tiny businesses don't typically experience. a number of these challenges are:

They have a harder time hiring talented employees, usually thanks to lack of exposure.

For an equivalent reason, micro businesses don’t have an equivalent customer reach as their larger counterparts.

These businesses can also face problems getting loans from traditional financial institutions, especially if the companies are too small.

Micro businesses have a harder time developing lines of credit with vendors due to the increased risk of default.

It’s not all bad! A micro business will have different operating goals than a bigger business, and thus, will have lower operating expenses. Due to this, the goal of a micro business owner should be to extend revenue. While other businesses attempt to cut costs, a micro business’ costs are probably already low.

Outsourcing Can Help

If a micro business owner chooses to work as a sole proprietorship, they're going to be taxed at their personal rate. Most micro business owners operate under this structure because it takes less effort to register and file paperwork, but the business structure they choose for his or her micro business, or any small business, changes the way their taxes are assessed.

Also, accounting services for small business, if registered as an organization or an LLC, find that their taxes are assessed at a company rate rather than the private rate that micro businesses use.

Micro businesses may employ just a couple of staff members but not enough to warrant in-house payroll, HR or accounting teams; however, they still need to perform payroll functions to make sure adherence to payroll taxes, corporate taxes and therefore the government’s fiscal policies. This puts them during a perfect position to outsource to an independent company that focuses on payroll and accounting.