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Types of Micro Business

Heidi Thorne is an author and business speaker specializing in sales and marketing topics for coaches, consultants, and solopreneurs.

Explore the world of micro businesses and see if this type of business is right for you.

Explore the world of micro businesses and see if this type of business is right for you.

Micro businesses are the smallest organizations in the small business segment. However, their ranks are far, far from being micro. According to the U.S. Small Business Administration, 78.5 percent of small businesses are "nonemployer" firms, meaning that they have no employees.

Other Names for Micro Businesses

  • Micro enterprises (term often used outside the United States)
  • SOHO (Small Office, Home Office)
  • Home based businesses
  • Solopreneurs (an entrepreneurial business that has one person in it)
  • Freelance artists and consultants
  • Self-employed
  • Independent contractors (a tricky designation that will be discussed later)
  • Independent distributors (term is often used for representatives in multilevel marketing organizations)
  • eBay, Etsy and other online sellers

What defines a micro business?

As the SBA notes, what defines a micro business from other small businesses and larger organizations, is:

  • Fewer than 5 employees
  • Little capital requirement to get started which, as of this writing, is $35,000

Can Micro Businesses Make Large Profits?

Interestingly, micro business does not mean that the money to be made is "micro," too! It's more about the investment required. However, as noted in Entreprenuer vs. Small Business: What's the Difference?, a micro business with this number of employees would be considered a small business until it reaches $7 million in revenues (as of this writing and varying by industry classification).

Though micro businesses may be made up of only one person, they are not just sole proprietorships. They can be structured as partnerships and corporations, too, depending on what legal entity is most advantageous.

Also, not all micro businesses are home based businesses, although that is quite common.

Easy In, Easy Out

Though for many people up to $35,000 seems like a huge investment, it is relatively low by business investment standards. Some micro businesses can even be started for less than $100! And with that low investment barrier to entry, it is easy for people to get started with these ventures. On the flip side, a low level of investment also makes it easy for people to walk away from the micro businesses they start.

Independent Contractors and Taxing Issues

One of the more risky sides of micro businesses is taxation issues.

Many who leave the standard workforce to strike it out on their own can run into problems with classification as independent contractors, sometimes ironically working for their former employers. The United States Internal Revenue Service (IRS) has defined an independent contractor under this rule:

The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.

This has become and continues to be a major issue and gray area—for both micro businesses and the organizations that hire them—as more people lose their jobs and decide to work for themselves in difficult economies.

Another issue that arises is whether the business is truly a business or a hobby. This question really comes up when a person is looking for a way to write off their hobby expenses by creating a business.

Consulting a CPA or tax professional is recommended for all micro businesses to avoid taxation surprises and learn what tax rules and deductions apply to them.

Micro Business, Macro Exposure

With the advent of the Internet, almost everyone has the capability to make money online by doing things such as hosting advertising on their sites, becoming a seller on eBay, writing and more. But doing business online is being in business! This opens up a host of insurance and other business issues that many micro businesses are ill prepared to face.

For example, selling crafts seems like a wonderful idea for sharing one's talents and making money doing it. But say that the craft sold is a food product (not an uncommon scenario). Should that person carry commercial insurance to cover any claim or lawsuits due to foodborne illness? Granted, the level of distribution and exposure could be very low, unlike major branded products which are sold by the millions. However, the possibility exists.

Consult a commercial and professional liability insurance provider (as opposed to one that just handles personal lines such as home, auto and life) to determine what coverages apply and policy costs. Consulting a legal professional on contracts and business laws that apply to the operation is also recommended.

Help Links

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2013 Heidi Thorne

Comments

Heidi Thorne (author) from Chicago Area on December 27, 2013:

Yuletide was wonderful! I let the professionals (i.e. restaurants) do the cooking. I know my limitations. :)

Hope yours was equally enjoyable and that 2014 brings much success and happiness! Thanks for all the support & conversation in 2013!

Alan R Lancaster from Forest Gate, London E7, U K (ex-pat Yorkshire) on December 27, 2013:

Hope you enjoyed the Yuletide, and look forward to a Prosperous New Year 2014.

Alan R L

Heidi Thorne (author) from Chicago Area on December 24, 2013:

Hi AliciaC! Isn't that stat astounding? We are a nation of independent business people. Thanks for stopping by & reading. Merry Christmas!

Linda Crampton from British Columbia, Canada on December 23, 2013:

This is useful information, Heidi. I found it especially interesting to read that ninety percent of U.S. businesses are micro businesses! I had no idea that the percentage was that high.

Heidi Thorne (author) from Chicago Area on December 23, 2013:

Hello alancaster149! Agreed, we're probably not going to be taxman targets for royalties anytime soon. ;) But it would be a nice problem to have. Glad to hear about your traffic on Northworld! That's awesome. Appreciate your reading & input through the year. Hope you have a Very Merry Christmas & Happy New Year!

Heidi Thorne (author) from Chicago Area on December 23, 2013:

Hi FlourishAnyway! No pun intended with "food for thought" for sure. ;) While the exposure is probably quite low for very small operations, it is worth considering. Hope your holidays are filled with fun!

Alan R Lancaster from Forest Gate, London E7, U K (ex-pat Yorkshire) on December 23, 2013:

Even writing on the Net amounts to private enterprise, eh? Mind you, at the current royalty rate, I think it'll be a while before the Taxman starts chasing after me. Being already registered for tax purposes at Amazon, I don't see George Osborne or his successor harrassing me for the foreseeable future... A little over £5 from Amazon at the last count.

Anybody seen a queue at the door yet? Still, I chould get my $50+ (about £35) from this lot before long... Are you listening,George?

[By the way, Heidi, been visiting the Northworld site lately. Over 3,100 visitors can't be wrong]

FlourishAnyway from USA on December 23, 2013:

You provide an interesting thought about making food items for sale. Yikes. The insurance issue is definitely "food for thought."

Heidi Thorne (author) from Chicago Area on December 22, 2013:

Aw, thanks, billybuc, for taking a moment out of your busy pre-holiday weekend to say hello. Merry Christmas to you, too!

Bill Holland from Olympia, WA on December 22, 2013:

Such a busy weekend, Heidi. Please forgive me, but I didn't read this one. I just stopped by to wish you a very Merry Christmas.

bill

Heidi Thorne (author) from Chicago Area on December 22, 2013:

Hello Suzanne Day! Yes, the micro funding is a huge positive effort throughout the developing world (probably a topic for a whole other hub!). True that the market is our employer when we're in business (micro or otherwise) for ourselves. I kinda like it that way. Thanks for commenting & Happy Holidays!

Suzanne Day from Melbourne, Victoria, Australia on December 22, 2013:

I enjoyed reading this hub as I own a micro business myself! I am fascinated by hearing about micro business funding in other countries too, as it can assist impoverished people to get more income on the side without having to be at the whim of an employer. I guess you could say though that the market is their employer. Voted up and useful!