What’s the Difference Between Micro Businesses and Small Businesses?

by Craig Anthony

2 min read

If your business runs on an extremely small scale, you may actually be considered a micro business. This smaller classification of a small business means you operate with a very minimal amount of staff, receipts, and business activity. Although the difference in classification may not seem too important, there are a number of things to keep in mind if you do operate a micro business.

Micro Business vs. Small Business

All micro businesses are small businesses. The only difference is a micro business is a subset of the small business community based on the number of employees within the company. While your company can technically be considered a small business even if it has dozens of employees, your business is a micro business if you employ less than six people. If you are a sole trader, self-employed, or have no employees, you operate a micro business. There are other guidelines that can also define whether your company is micro or small. If your company required less than $50,000 to start or if your company does not access traditional capital loans, you are running a micro business.

Challenges of Micro Businesses

A micro business faces additional challenges that other businesses, including larger small businesses, do not face. You will have a harder time hiring employees and drawing in talent because of your lack of exposure. For the same reason, micro businesses do not have the same customer reach as larger companies. Traditional financial institutions may refuse to issue loans if your business is too small. Micro businesses have a harder time developing lines of credit with vendors because of the increased risk of default.

Micro Business Taxation

The taxes you pay on the earnings of your micro business are potentially not treated too differently than any other small business. If you incorporate your business, it is taxed at corporate tax rates. If you choose to operate as a sole proprietorship, you are taxed at your personal tax rate. Most micro businesses are more likely to operate under this structure because it takes less effort to register and file paperwork, but the business structure you choose for your micro business, or any small business, changes the way your taxes are assessed.

Payroll

Micro businesses are in a unique position regarding payroll. You may have a few employees; this requires you to perform payroll functions and pay required payroll taxes, but you may not have enough employees to warrant a large-scale payroll system or reporting system. Your micro business is better-suited with a flexible system that doesn’t require a lot of setup. As your business grows, having a larger infrastructure becomes more important, but it’s hard to justify a large-scale implementation for a minimal need.

Cost Cutting While Maximizing Revenue

Your micro business will have different operating goals than a larger business. It will have less expenses than a larger company. Because of this, your goal should be to increase revenue. While many businesses try to cut costs, your costs are probably already low. As such, a major difference between a micro business and a small business is the way the micro business improves its bottom line. Bigger companies can trim operations; micro businesses must grow them. A micro business may just be a specific type of small business, but it faces unique challenges that force it to operate in ways different than other companies.

References & Resources

Related Articles

What’s Changed in the New QuickBooks

The new QuickBooks Online bookkeeping software has gone through quite a few changes. As…

Read more

Checklist Before Leaving Your Job to Become Your Own Boss

So you’re thinking of quitting your job to become your own boss. In other…

Read more

Becoming a Business Consultant

If you feel like you can help people improve their projects through…

Read more