micro businesses

MICRO BUSINESSES

Alan Melton

Micro businesses, companies with fewer than ten employees, generally work like small businesses but have some differences in getting funding and expanding. However, it is a lucrative venture to explore, and in this article, we will be exploring microbusinesses and all the necessary detail to set up and succeed at a micro business. So, let’s get into it.

MICRO BUSINESSES

different-types-of-small-businesses

What Is a Micro business?

According to the Small Business Administration (SBA), micro business is a term used to describe those businesses that typically have about 1-9 employees. This definition may vary from region to region. For example, in Vermont, USA, the definition restricts the number of employees to less than five people, and annual revenue generated to be less than $25,000. The definition for micro businesses could also include sole proprietors with no employees.

Micro businesses vs. Small Businesses

Micro businesses aren’t the same as small businesses. Micro businesses can be viewed as a subset of the term “small business.”

Small businesses, like micro businesses, don’t have a standard definition across the board, as the definition varies among different industries. For example, in the manufacturing industry, a small business includes less than or equal to 500 employees. Simultaneously, in the retail and service domain, the average annual revenue should be less than or equal to $6 million. SBA standards allow for small businesses to have easier access to loans and government contracts than micro businesses.

Examples of Micro businesses

Micro businesses, more generally, operate in sectors like retail, construction, health care, and social assistance. In fact, microbreweries can be categorized as micro businesses so long as they produce fewer than 15,000 barrels of beer annually. Even cannabis-related businesses may be categorized as micro-businesses. For instance, California, USA regards cultivators, distributors, manufacturers, and retailers of cannabis and cannabis-related products within the aforementioned defined scale as micro businesses.

How Does a Micro business Work?

Micro businesses operate in a similar fashion to much larger businesses, with regards:

  •         Deciding on a legal business structure, e.g., LLC, corporation, or partnership
  •         Structuring financial, management, marketing, and operations
  •         Getting business permits and licenses

Taxes for micro businesses largely depend on the formal business legal structure used – sole proprietorship, corporation, partnership, or LLC. These taxes may include:

  •         Income taxes
  •         Payroll taxes
  •         Sales taxes
  •         Property taxes etc.

State Intervention Programs for Micro businesses

Like small businesses, micro businesses may benefit from intervention (aid) programs from the government., the degree of such intervention may vary from region to region.

For example, there is a Micro Business Development Program for low-to-moderate-income start-ups to help such micro businesses start and grow in Vermont. This aid covers networking, seminars and workshops, counseling, and networking for the micro business.

Mecklenburg County, Pennsylvania also has a micro businesses aid structure set up with financial support of up to $10,000 to help qualifying businesses navigate through an economic slump.

Consult with your local government structure for specific loan and aid programs for micro businesses.

Pros and Cons of a Micro business

Like any other venture, micro businesses have advantages and disadvantages.

Pros

Let’s explore some of the most significant advantages of running a micro business.

  1. There is room for specialization in a specific niche

small business coffee shopIt is a common trend for businesses to start out trying to supply various goods and services. They start out with extensive teams and anticipate and invest hefty sums of money. Only with time do they start realizing which specific aspects of the business are sustainable and which should be suspended. The end result to this a trimming of the unnecessary workforce and more efficient operations

Some other companies take a different route to those mentioned earlier, starting out with a niche and quickly expanding the business to a more significant market only to end up with very little interest in the specific goods/services rendered. Of course, such start-ups could have been better served with a smaller area focus like a community.

Now, these are two polar ends of common business scenarios, and micro businesses allow you to have the best of both worlds. A Micro business allows for a great deal of specialization in the market and remains profitable as the market expands. A niche allows for a greater degree of focus and dominance over the competition concerning the specific good and service rendered.

  1. Greater adaptability and flexibility to change

When it comes to start-ups, it is common to have start-ups pivoting business ideas to accommodate changing tastes. This involves making significant alterations to the structure and even nature of goods/services offered by the business to achieve better results. This was the case of social media giants like Instagram and Twitter, which emerged from pivots and are clearly on a booming trend.

Now, the challenge with achieving a pivot in the midst of changing tastes and preferences in consumers is the team’s size. In the above example, teams constituted behemoths of friends and relatives who pursued their dreams and aspirations in doing what they loved. For such small teams, pivotal changes were a lot easier. With a team of over 40 members, however, not so much. It would take months to achieve pivot.

This is where micro businesses shine. Their small teams allow adaptive changes within small time gaps. It also means whenever there is a shift in industry standards or consumer preferences, they can easily band together ideas and take advantage of new opportunities. Think of it regarding warfare: a small unit of elite warriors is better suited for hazardous or unchartered terrain than a large battalion of soldiers with diverse skills.

  1. Lower overhead costs and fewer expenses

micro business wineryIncreased business size means higher operational costs. Even with a shift from traditional to remote working setups, there is still the matter of comprehensive HR oversight and payroll management. It is an irrefutable fact that many businesses can’t fully operate remotely, necessitating the need for office spaces and other facilities.

In this dilemma, micro businesses present another advantage – the small team sizes allow for lower overhead costs as modern automation systems can be leveraged efficiently without the need for larger team sizes. There is also less need for oversight, especially with side-hustle start-ups like freelance marketing. It’s as simple as putting up campaigns, setting them in motion, and reviewing them seasonally.

Even when there is the need for some form of training or workshops, they can easily be organized as company-wide sessions, rather than departmentally or per team. This will significantly reduce running costs and allow for revenue reallocation towards the growth of the micro business like raising employee wages, investing in better operational infrastructure, setting up advertisement campaigns, etc.

  1. Independence for the Non-Committed

There is great liberty to choose a business path with micro businesses and determine the future you want as an entrepreneur. This freedom not only applies to the business owner but sips to the employees as well.

Cons

Having looked at some of the most significant advantages of running a micro business, let’s look at some of the disadvantages to running micro businesses. Here are a few to consider:

  1.     More significant workload on fewer employees.

overworkedThere is the prevalence of more responsibilities for fewer people to manage.

When it comes to running a modern business, it can be not very easy, especially with variables like content marketing and reputation management in the equation. In this modern age, the repercussions of just a single negative review on social media can be crippling and generate and continuously update content online to keep up healthy marketing.

Now, outsourcing some tasks can be a really decent and yet inexpensive way to get things done. However, it will still require time to outline the tasks, energy to manage communications and ensure deadlines are met in delivering results. Handling everything in-house could be the way to go, but it bring s up another problem – the few members on the team means there may not be available the necessary skill needed at the time.

One of the main reasons more prominent companies hire new employees regularly is to stock up enough skills to get things done efficiently. For example, they may hire a graphic designer to aid in branding and publicity adverts, thus improving the company’s overall productivity. With micro businesses, the fewer employees mean much is left to the charge of fewer individuals. Though it may be fun at first, it can quickly degenerate into a grievous and strenuous venture.

  1. Higher risk of failure and funding challenges

Surely you’ve heard the phrase, “Too big to fail, often associated to financial institutions that have had a hand in major financial crises, but since they are heavily relied upon to the point that the collateral damage upon their dissolution would be irreparable, the government instead chooses to encourage and promote them.

So, what’s the point of all this? Well, size sometimes does matter, and a company can survive through some hardship and challenges simply because of its size. The larger the company, the stringer its brand, the greater its turnover, the more recognition it accrues. In the event of a challenge or difficulty, they can fall back to savings, downscale, or even relinquish some assets to ensure survival. Also, more prominent companies would have a lot less of a hassle getting loans or investments since they’d have more significant financial records.

On the other hand, micro businesses are a lot smaller and will definitely find challenges obtaining loans or attracting outside investors. Even when they try to attract investments, they will come off as too risky by their size, and if they simply don’t make an effort, potential investors won’t see much of an opportunity for profit on their investment.

  1. Limited access to valuable resources

Larger businesses usually have a lot less harder of a time attracting favors and discounts from c=various service providers since they have a name recognition advantage that can attract support from other notable industry figures. More often than not, companies over scaling discounts as a way to attract more significant contracts and will generally do so for companies they know would double-back the gesture along the line.

Micro businesses have neither the considerable name recognition nor the size to attract such bonuses and discounts. Since they usually won’t be able to pay for large contracts, concessions on their rates would hardly be made in their favor. As such, it holds that the bigger the business, the better the prices you’d get for goods and services from other service providers, and the easier it will be to convince others to value a potential business relationship. Such leverage is hard to deny and is indeed farfetched for many micro businesses.

Summary

Here’s a summary of the pros and cons of micro businesses

Pros

  •         Simple operation
  •         Ability to grow
  •         Room for specialization
  •         Greater adaptability and flexibility to change

Cons

  •         More difficult to get loans
  •         The more significant workload on fewer employees.
  •         Higher risk of failure
  •         . Limited access to valuable resources

How to Start a Micro Business in 6 Steps

So, are you interested in starting a micro business? The advantages are, no doubt, significant and, like any other type of business, there are challenges to it. But I dare say those with the will to succeed can surely set up and succeed with a micro business. Here’s a step-by-step approach to starting a micro business.

Step 1: Establish a mission and vision statement.

It is essential to develop and clearly state the intents and purpose of the business. This is the foundation of the business and surmounts the mission and vision statement. When there isn’t a clear vision and mission statement, growth will be hindered as the path to realizing the business’s more detailed plans will be blurred.

Well-structured vision and mission statements also reveal what the business stands for and will attract customers and investors who are interested in the business’s core values.

Step 2: Draw up a good business plan

business plan for micro business

Your business plan is a written document encompassing and clearly outlining the objectives, forecasted cost, and detailed strategies for running the micro business. If you need to attract investors to the micro business or acquire loans, then a formal business plan is a prerequisite.

Research shows that people who write up great business plans are more likely to start up the business. Writing up a business plan also triggers critical question for the success of the business like:

  •         What market is available for my product or service, and what is its current outlook?
  •         Who would be my market competition, and how would I stand out from the crowd?
  •         Who are my potential customers?
  •         How will I reach them?
  •         What will it cost me to survive my first year in the micro business?
  •         Where will the needed money come from?

A business plan would typically include financial details—projections of sales, expenses, assets, and cash flow. The financial documents needed for a formal business plan include:

  •         Balance sheet, showing what you own and what you owe
  •         Profit and loss (or income) statement summarizing revenues and expenses every three months (quarterly) and annually (each year).
  •         Cash flow statement (or forecast), showing working capital for better expenditure predictions.

Step 3: Decide micro business structure

Setting up a successful business is essential to establish the business structure – legal entity –to run the business.

Sole proprietorships (which are single-owner businesses) and partnerships (having two or more owners of the business) are the least costly business structures. In these setups, owners have all the power in business decisions. They also are obliged to make reports detailing income and losses and are, thus, personally liable for any and all business-related debts.  In the event of business failure, they may file for bankruptcy, which may allow them to abandon debts, but damage personal credit history in the process.

A corporation is a legal business structure that is legally separate from the people who own it under state or federal law. Like people, corporations can also own property, incur debt, sue, and be sued. Most corporations exclude members from personal liability with corporation dealings or lawsuits.

A Limited Liability Company (LLC) is a business structure that combines a corporation’s features and those of a sole proprietorship or partnership. An LLC offers some protection of personal assets and from personal liability and is a suitable option for both one-owner or multi-owner micro businesses.

LLCs also require more legal documentation than much simpler sole proprietorships or partnerships, but the legal requirements are fewer than corporations.

Step 4: Establish detailed operation plans for the business

The next step is to outline plans of operation for the business clearly. There are numerous moving parts in a company, but it all simplifies well-structured goals and milestones with timelines to organize day-to-day activities. And to make things easier, there are diverse technological tools today like business model canvases or one-pagers to address any potential issues that may arise in the running of the business

To achieve an effective plan of action, you should ask yourself the following questions:

  •         Who are my key partners and suppliers?
  •         Where does my micro business function?
  •         What facilities do I need, and how much do they cost?
  •         What is my business structure?
  •         Who are my target customers?
  •         What ways can I possibly use to meet the needs of my target customers?
  •         What is my cost structure/revenue stream?

Step 5: Anticipate financial needs

financial needs for micro business

As a sub-focus point to step 2, you should establish a projected balance sheet, itemized income statement, and cash flow statement for your micro business. It would be best if you achieved this using a well-researched and thoroughly prepared financial plan, such that you pitch to outside investors and lenders.

Many businesses fail primarily because of lack of funding, and it is imperative to assess financial needs before setting up a micro business carefully.

Such funding anticipations should include operating costs for at least a year. Having reliable predictions of the micro business’s running cost will enable you to prepare a reasonable budget better to accommodate your business plan.

The estimates should include:

  •         Your salary needs: This is the money from the micro business you’ll live on if you’re quitting a salaried job.
  •         Initial (start-up) costs: This will include the cost of equipment, installations, remodeling, professional and legal fees, licenses, etc.
  •         Direct costs: This will cover the cost of raw materials or inventory
  •         Overhead Cost: This will include rent, office supplies, utilities, and maintenance
  •         Recurring costs: This will include salary payments, tax payments, advertising and promotion costs, as well as micro business insurance costs.

In many cases, micro businesses start with the founder’s savings, so it follows that having a saving will bail you out of tight corners in your micro business. However, even without saving to start up with, you could still borrow the needed capital. Taking loans requires a good credit history, a means of repaying the debt, and, in the case of larger loans, collateral.

Here are some familiar sources of people use to start micro businesses:

  •         Use money from savings
  •         Form a partnership
  •         Applying for a Small Business Administration loan.
  •         Tapping individual life insurance.
  •         Leasing equipment, rather than buying it.
  •         Bartering—or exchanging—property or services directly

Step 6: Organize a marketing strategy

Marketing strategy is an indispensable requirement for a successful micro business and is especially important seeing the small team sizes with micro businesses. You must understand your customers and develop ways on how to reach them, backed by proper research. Such information will enable you to launch online campaigns like Google ads, social media ads, email marketing, and content marketing/SEO.

Step 7: Research and test your product

Prototyping is an excellent strategy to better your micro business from consumers’ viewpoints. Some research examples for microbusinesses include:

  •         Surveys
  •         A templated, pre-launched, or preview website
  •         Offers to build an email list
  •         Calling vendors and potential customers

When there is resistance or opposition from people to test your product or service, jump on it as an opportunity to request feedback on how to improve your product or customer service.

Step 8: File your micro business and Start

After establishing an operational mission and vision statement, operation plans, financial plans, marketing plans, legal framework, and adequate research on the product you’re marketing, it’s time to officially file your micro business with the government for the legal backup to operate.

With the above steps, you’re sure to start up a micro business effectively.

So, there you have it, folks! Here is a blog on 51 Best Start-up Ideas and a Business Startup Checklist!