What is a Microbusiness: Definition and How to Start One was originally published on The Muse, a great place to research companies and careers. Click here to search for great jobs and companies near you.
Have you ever thought of starting a business, but got worried about the massive investments and risks involved? Don’t be discouraged—the answer might be to enter the world of microbusiness—a dynamic and flexible way to become your own boss without breaking the bank.
Microbusinesses are tiny but mighty ventures that offer a fantastic opportunity to start a thriving business, all from the comfort of your home or a modest space.
In this article, we’ll explore what microbusinesses are, highlight the differences between micro and small businesses, provide examples, discuss the challenges, and lay out a step-by-step guide to starting your own microbusiness.
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What is a microbusiness?
“A microbusiness is typically defined as a business with fewer than 10 employees and a very small capital investment,” says business consultant Joey Peppels, CEO and founder of MoneyMavenHub. “Its scale is modest, usually focused on niche markets, and it is often operated by a single person or a small team.”
These businesses are popular because they require minimal startup capital and have low operating costs. Often, they start as hobbies or side hustles, providing additional income for the owner.
That said, smaller scale generally means smaller income. “Microbusinesses generate lower annual revenue compared to larger small businesses,” Peppels says. “This can range anywhere from a few thousand dollars to under $250,000 annually, though it can vary by industry and region.”
Microbusiness vs. small business: Understanding the differences
When it comes to businesses, size does matter. Knowing the differences between a microbusiness and a small business can help you understand each type’s unique advantages and challenges.
So, what is the difference between a micro business and a small business? Here’s a breakdown:
Differences in size and scope
“Microbusinesses have fewer than 10 employees, while small businesses can have up to 500 employees, depending on the industry,” Peppels says. “A microbusiness usually generates lower revenue, often under $250,000 annually, and tends to focus on specific niches like freelance writing or personal training.”
“Small businesses, on the other hand, can generate millions in revenue depending on their scale, market, and industry,” the expert says. These businesses offer a broader range of products and services, catering to a larger audience.
Small business financing guidelines
In the U.S., small businesses must follow specific financing guidelines in order to meet regulations and get funding. The Small Business Administration (SBA) defines them by revenue and employee count to qualify for government-backed loans.
For microbusinesses, the guidelines include:
- Revenue requirements: “Microbusinesses often have lower revenue thresholds compared to small businesses,” Peppels says. “Lenders might work with businesses making under $50,000 annually, while small businesses may need to show $100,000 or more in revenue to qualify for larger loans.” This flexibility can be beneficial for emerging businesses that haven’t yet scaled up in size.
- Loan amounts: “Microloans are typically smaller, usually between $500 and $50,000, which is ideal for businesses with lower capital needs,” Peppels says. “Small businesses, on the other hand, can qualify for much larger loan amounts, depending on their size and revenue.” These larger loans can support more substantial growth and expansion efforts.
- Collateral: “Many microloan programs are more lenient with collateral requirements or don’t require collateral at all, particularly for new businesses,” Peppels says. This flexibility makes it easier for microbusinesses to secure financing, as they might not have significant assets to offer as collateral, unlike small businesses.
- Lenders: “Microbusinesses often access funding through alternative lenders such as nonprofits, community development financial institutions (CDFIs), or the SBA Microloan Program,” Peppels says. ”Small businesses may more commonly seek loans through traditional banks or credit unions.” This diversity in funding sources can help microbusinesses find more tailored financial solutions.
Micropreneur vs. entrepreneur: A closer look
It wouldn’t be a worthwhile enterprise without a clever name for the business owner: Microbusinesses are started by micropreneurs. Besides understanding the differences between microbusinesses and small businesses, it’s also helpful to know how micropreneurs differ from entrepreneurs—especially when it comes to focus and growth strategies.
Focus and investment
A micropreneur prefers to keep their business small and manageable. They focus on meeting client needs and delivering quality service without a significant investment in infrastructure, employees, or property. In contrast, entrepreneurs aim for rapid growth and often secure external financing to scale their operations quickly.
Growth and financing
Micropreneurs are not necessarily averse to growth but prefer a more controlled and sustainable approach. They might reinvest profits back into the business but are less likely to seek large-scale financing or take on significant risks. Entrepreneurs, on the other hand, are more likely to chase big ideas and secure funding to support their ambitious growth plans.
Microbusiness examples
Microbusinesses come in various forms, each with unique characteristics and operational needs. These businesses can be highly specialized or cover a broad range of services.
So, what kinds of businesses fall under the microbusiness definition? The range is broader than you might think. Let’s take a look at some common categories and professions that illustrate the diversity and potential of microbusinesses:
Freelancers and contractors
Freelancers and independent contractors are some of the most common types of microbusinesses. These individuals offer specialized services, from graphic design to consulting, often working from home or in coworking spaces. They usually operate without a formal microbusiness license, making it easy to get started.
Startups
Startups and e-commerce businesses also fall under this category. These ventures test new ideas and markets with minimal initial investment. They often start small, focusing on niche products or services before scaling up.
Home-based businesses
Home-based businesses are another popular form of microbusiness. These include everything from homemade crafts and baked goods to virtual assistant services. The low overhead costs make it an attractive option for many aspiring entrepreneurs.
10 microbusiness ideas to consider
The range of professions within the microbusiness world is vast. These professionals may operate from home, have physical storefronts, or even run their businesses entirely online.
Here are some ideas that might align with your skills, past experience, and aspirations:
Creative services
- Graphic design: Offering logo design, branding, and marketing materials
- Writing and editing: Providing content creation, copywriting, and proofreading services
Personal services
- Fitness coaching: Offering personalized training programs and wellness advice
- Beauty services: Running small salons or providing mobile beauty services like hairstyling and makeup
Technical services
- Web development: Building and maintaining websites for small businesses and individuals
- IT consulting: Offering technical support and advice to other small businesses
Retail and e-commerce
- Online stores: These stores sell products through platforms like Etsy, eBay, or personal websites
- Boutique shops: Offering specialized products, often with a unique or artisanal focus
Professional services
- Accounting: Providing tax preparation and financial consulting for individuals and small businesses
- Legal consulting: Offering specialized legal advice on a freelance basis
How to start a microbusiness in 9 steps
Ready to start your own microbusiness? Here’s a practical guide to help you get started on the right foot:
1. Write a business plan
A well-thought-out business plan helps you focus your vision, set goals, and outline strategies. It also identifies potential risks and how you plan to overcome them. This document can guide you through the initial stages and help you secure any needed investment or funding.
2. Choose a business structure
Your options include sole proprietorship, limited liability company (LLC), corporation, or partnership. Each structure has its pros and cons, affecting daily operations, taxes, and personal liability.
3. Pick a business name
Your business name should be easy to remember and descriptive of what you do. It should also align with your brand and be unique enough to stand out. Once you’ve chosen a name, check its availability and register it. (If you’re not ready to register yet, here’s how to reserve your business name.)
4. Register your business
Depending on your business structure, name, and location, you’ll need to register your business with state and local authorities. This step is essential for legal recognition and compliance.
The steps to register a microbusiness are fairly straightforward:
- Choose a business structure: “Decide whether to register as a sole proprietorship, LLC, or corporation,” Peppels says. “Many microbusinesses opt for an LLC for liability protection.” An LLC, or Limited Liability Company, not only provides flexibility but also shields personal assets in case of legal issues.
- Register with state authorities: “File the necessary paperwork to register your business with your state’s secretary of state office, especially if forming an LLC or corporation,” he says. This registration is crucial for obtaining the legal status needed to operate and to protect your business name within the state.
- Obtain necessary licenses: “Apply for any local business licenses, permits, or industry-specific certifications,” Peppels says. These licenses ensure that your business complies with local regulations and can legally conduct its operations.
- Open a business bank account: “Keep your personal and business finances separate by opening a dedicated business account,” Peppels says. This separation simplifies accounting and protects your personal assets, making financial management more straightforward.
- Secure an EIN (if necessary): “Depending on your business type, you may need an Employer Identification Number (EIN),” Peppels says. An EIN is essential for hiring employees or establishing a business credit line, and it serves as a unique identifier for your business in financial and tax-related matters.
5. Secure a tax ID
You may need to register for a federal Employer Identification Number (EIN) and state tax ID, especially if you have employees or plan to hire in the future. These IDs are crucial for tax filing and other regulatory requirements.
An EIN is not always necessary for a microbusiness, especially for sole proprietors without employees. However, it is required if:
- You have employees
- Your business operates as a corporation or partnership
- You plan to open a business bank account or apply for a business loan
When a TAX ID might be needed: If you are a sole proprietor without employees, your Social Security Number (SSN) can serve as your Tax ID. However, an EIN can help separate your personal and business taxes and is often requested by clients or vendors for tax reporting purposes.
How to obtain an EIN: “An EIN can be easily obtained for free through the IRS website by filling out an application” Peppels says. “The process is quick, and you’ll receive your EIN immediately upon approval.”
6. Set up business finances
Separating your personal and business finances is crucial for managing expenses and liabilities. Opening a business bank account and credit card can help you keep track of business-related transactions and make accounting easier.
7. Get insured and licensed
The licensing requirements for a microbusiness vary based on industry and location. “Most cities and counties require a standard business license to operate legally,” Peppelss says. “Depending on the type of business (e.g., food services, childcare, health services), additional permits or certifications may be required.”
“If operating from home, you may also need a home occupation permit,” he says. These permits ensure compliance with local regulations, zoning laws, and industry standards. Business insurance can also protect you from unforeseen risks and liabilities. Make sure you’re covered before you start operations.
8. Organize accounting and financing
Good accounting practices are vital for any business. Whether you handle it yourself or hire an accountant, keep track of all financial transactions. If you need additional funding, explore financing options like small business loans or grants. (Here’s how to get a startup business loan with no money.)
9. Launch your marketing efforts
Marketing is key to attracting customers and growing your business. Utilize social media, local advertising, and networking events to get the word out. A well-executed marketing plan can make all the difference.
Potential challenges of running a microbusiness
Running a microbusiness is rewarding but comes with its own set of challenges. Let’s explore some of the most common issues you might face and how to overcome them:
Regulations and legal needs
Navigating the maze of regulations, licenses, and permits can be overwhelming. From business licenses to tax laws, staying compliant is crucial yet complicated, especially as laws and regulations constantly evolve.
Start by consulting with a legal expert to understand the specific requirements for your industry. Try to stay updated on changes in laws and regulations. Consider setting up a calendar reminder to regularly review your compliance status.
Financial stability
Maintaining a steady income stream is another significant challenge. Clients come and go, and seasons change, affecting your cash flow. Planning, budgeting, and sometimes just plain luck are essential to keep the business afloat.
Establish a solid budgeting plan and set aside an emergency fund to cushion against fluctuations. Diversify your client base and revenue streams to reduce dependency on a single source. Regularly review financial performance and adjust strategies as needed to maintain cash flow.
Marketing
One of the biggest challenges for microbusinesses is getting noticed. With limited budgets and resources, reaching your target audience can take time and effort. Leveraging social media, local networking, and word-of-mouth can go a long way in building your brand. If you’re out of ideas, here are eight marketing strategies for small businesses—from basic to innovative.
Scalability
Many microbusinesses struggle with scalability. Limited funds and resources make it challenging to meet high demand or expand operations. Prioritize efficiency and explore partnerships to scale up without overwhelming your business.
Technology
The right tools and software can make running a microbusiness easier, but knowing which ones to invest in can be tricky. Stay updated on the latest technology trends and choose tools that offer the best return on investment.