How Is a Micro Business Different From a Small Business?

micro business
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Micro businesses are a vibrant and profitable segment of any growing economy, but they often get swept up into the same tornado of information that applies to small businesses in general. But as more members of the workforce become self-employed, the growth of micro businesses has increased significantly.

What Is a Micro Business?

Micro businesses are companies with annual sales and assets valuing less than $250,000 per year with fewer than five employees including the owner. A subcategory of small business, micro enterprises develop in a variety of industries that may later grow beyond their original foundation, or stay the same size for the life of the company.

Some of the most common micro businesses include catering, child care, photography, computer services, house cleaning, event planning, accounting and cosmetology. Yet, regardless of the industry, all micro businesses require many of the same skills to thrive as their larger business counterparts.

From a sound business plan to professional legal assistance, a micro business should be treated with the same level of shrewd initiative and commitment as any business of a larger size. As a matter of fact, it’s that initiative and commitment that lead many micro businesses to grow into bigger entities that comprise the small business market.

Micro Business vs. Small Business

So what differentiates a small business from a micro business? Although there is no universal, or even national, definition that limits a micro business from also being labeled as a small business, small businesses are identified as for-profit enterprises that are independently owned and operated, but do not dominant their industry or local market. Generally, they can staff anywhere from 500 or fewer employees, and their assets total less than $1 million per year.

Unlike their micro business counterparts, small businesses tend to have less difficulty securing capital loans or lines of credit, and recruitment as an independent enterprise is met with less resistance as their companies are seen as more financially solvent. That solvency comes at a price, however, as many small businesses when registered as an LLC or corporation will find their taxes are assessed at a corporate tax rate instead of a personal tax rate commonly used by micro businesses run by solopreneurs.

Tax structure and recruitment process can also affect small businesses when it comes to their payroll system. As companies grow, a small business’ in-house team may require something more robust than a standard bookkeeping system to ensure payroll taxes, corporate taxes and government fiscal policies are adhered to. An internal payroll system, or outsourcing to an independent company that specializes in payroll accounting, can help alleviate the problems that come with increases in size and logistics.

Although all micro businesses are technically small businesses, the operating costs and revenue collected is often significantly higher for a small business as it scales up, even with the addition of only one new employee. Yet, with micro businesses responsible for more than 41 million jobs in the U.S.’s private sector, it’s important to not discount why entrepreneurs with a business of five or fewer employees require their own market representation.

An Added Challenge for Micro Businesses

Despite comprising a large segment of the entrepreneurial community, micro businesses continue to receive little attention regarding their importance in the overall economic landscape. As a result, policy makers continue to craft small business legislature that may greatly affect micro businesses without evaluating their specific needs.

Thankfully, the self-proclaimed “voice of micro business” in the United States, the Association for Enterprise Opportunity (AEO), speaks for the needs of companies considered too small for the Small Business Administration to recognize as unique. The AEO not only understands the contribution of micro businesses to the overall economy—as of 2011, that’s a whopping 92 percent of all American businesses—the organization also works to educate micro business owners on how the latest trends and government economic policy changes will affect them.

Whether you identify your business as small or micro, there’s no denying the advantages of running an enterprise on a niche or limited scale. Both company sizes serve their local economies as a provider of goods and services for a targeted audience that mid-size or large corporations may take for granted. Often bolstered by a level of expertise and commitment to quality customer service, small and micro businesses offer consumers a personalized experience in a society where interpersonal connection is valued as much as price.