What Is A Micro Business? Examples & FAQs

Written by JD Esajian

Edited By Jonathan Costello

Reviewed by Than Merrill

Key Takeaways

Examples of micro businesses |How to get a micro loan

In the age of the side hustle, most people can name at least one or two business owners in their social circles. Platforms like Etsy, eBay, Upwork, and more have made it easier than ever to monetize skills and hobbies, and these platforms are only the beginning. Many entrepreneurs have their own websites and social media profiles selling goods and services. Did you know each of these gigs could be classified as its own micro business?

Micro businesses are an increasingly common way for people to break out of traditional work environments. Running a micro business is no easy feat, but the benefits can make this an attractive opportunity for those with the time and the drive to succeed. If you are interested in becoming your own boss, selling your own products or services, or even supplementing your regular income: it may be time to consider starting a business. Continue reading to learn what a micro business is and how you can start one today.

What Is A Micro Business?

A micro business is a type of small business that employs less than ten people and earns less than $250,000 annually. It is common for micro businesses to operate as sole proprietorships, which consist only of the business owner. The Small Business Administration (SBA) also defines micro businesses as those requiring less than $50,000 to start. A few examples of micro businesses include freelance writers, Etsy shop owners, consultants, and many other self-employed workers. The business structure typically revolves around a smaller consumer market and allows owners to have a close relationship with their clientele.

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Types Of Micro Businesses

Micro businesses can operate in any sector of the economy, though they are particularly common in retail, creative work, food service, and real estate. For example, someone operating an Airbnb may be considered a micro business owner. Similarly, your local bakery owner could also be considered a micro business. Many states have their own set of classifications for what makes a micro business, though they generally follow the same guidelines.

Micro Business Vs. Small Business

Micro businesses fall under the small business designation, though they are even smaller in structure. A small business can refer to any company with 500 employers or fewer, or $6 million or less in annual revenue (depending on the industry). There is a lot of room between micro vs. small businesses in terms of startup costs, revenue, and legal structure. These designations are important to consider as they directly impact how businesses are taxed.

Micro businesses are typically operated as sole proprietorships, while small businesses generally register as LLCs or corporations. Sole proprietors are taxed according to the owner’s tax rate, and business-related expenses can be deducted on a personal tax return. Single-member LLCs are taxed similarly; however, things get different with larger LLCs and corporate tax rates. Understanding these differences can help micro business owners choose the best legal designation when starting their own business.

Advantages Of A Micro Business

Many aspiring entrepreneurs are drawn to the idea of a micro business because they can provide supplemental income; in some cases, they can even replace your full-time job. There are some other advantages of a micro businesses to consider:

Flexibility: Micro businesses can offer owners a degree of flexibility that is not typically associated with an office job. Owners can set their working hours and decide how many projects or clients to take on.
Independence: Do you prefer to work alone? Starting your own business is a perfect opportunity to create the company of your dreams. Many people enjoy the foundational steps of starting a business as they have full creative control over the direction of the company.
Market Opportunity: Many micro businesses offer a specialized product or skill, such as graphic design work or even homemade bread. By offering a unique service, you can build a consistent network of clients. Eventually, this can help you expand your business and increase your overall profits.
Low Business Costs: Micro business owners also enjoy lower overhead expenses when compared to larger business structures. There is often not a designated office space to pay for (as many micro business owners work from home), and there are fewer employees on the payroll.

Disadvantages Of A Micro Business

There are a few disadvantages of micro businesses to consider before starting your own. Most notably, micro businesses require a high level of involvement from owners. Here are a few things to think about before starting a micro business:

High Risk: Your success as a micro business owner will depend entirely on your ability to market yourself and your product to clients over time. This could result in busy spells or periods without a lot of work. It can be risky to quit your full-time job to start a micro business for this reason.
Lack Of Support: The work of a micro business often demands diverse skill sets from everyone involved. If you are the sole employee, you will be directly responsible for marketing, financing, selling, and managing any other aspects of the business.
High Level Of Involvement: There is a lot of responsibility necessary to be a successful micro business owner. Oftentimes, you will be the only person holding yourself accountable for work and time management. Micro business owners need to be self-starters.
Difficult To Attract Talent: After you spend time building your micro business the way you want, it can be challenging to find the right employees to help with the job. Some business owners may struggle to attract talented workers who fit the hiring budget, while others struggle with relinquishing control over certain responsibilities.

How To Start A Micro Business In 6 Steps

Do you have a product or service in mind that you think you could effectively market? If you are interested in creating your own micro business, here are a few steps you can follow to get started:

Create Your Mission & Vision Statement
Plan Business Operations
Assess Financials
Create A Marketing Plan
Research & Test Your Product
File Your LLC

1. Create Your Mission & Vision Statement

With your product or service in mind, you first need to establish your business’ purpose. What are your core values and business goals? Think through your intentions when starting this business and document them appropriately. Not only can this help you get focused, but later on can help you attract investors and clientele.

2. Plan Business Operations

The next thing you need to work on is planning business operations. What services will you provide, and how much will they cost? Write out your products and a general business model you want to follow. Identify what type of resources you need to get started and set a schedule for yourself. This is also a great time to get organized. Consider the following resources as you plan out business operations:

Project Management Software: Look up software that will help you track your projects and business progress. Examples include Asana, Trello, and Kissflow Project.
Online Calendars: Organization is key, especially in the early stages of starting a business. Consider using Google Calendars, Doodle, or Calendly.
Accounting Programs: Before you fully plan out your finances, research a few programs that might help you with a business budget. A few popular options are Scoro, QuickBooks, or BillQuick.

3. Assess Financials

Before you begin searching for your first customer, it is important to establish a baseline for your business finances. Look at how much money you need to cover upstart costs and plan out a budget with your ideal revenue numbers. This will help you identify how many projects you need to take on to begin turning a profit. Assessing your finances is also crucial if you want to apply for a micro business loan, as lenders will request this information upfront.

4. Create A Marketing Plan

Now it’s time to develop a marketing strategy and begin planning how you will attract customers. This step will look different depending on your industry, but it is crucial to seek low-cost options when starting out. Research similar businesses for ideas to help you get started and write out your target audience. Again, marketing will vary from industry to industry, but here are a few places to help you get started:

Build a Business Website: Almost every micro business owner could benefit from a dedicated website. This will help clients gather information about your services and brand. Several platforms offer templates and monthly plans for small business owners. Review these options and customize a website based on your business.
Start Networking: Networking is also crucial for small business owners. Reach out to people in your area and let them know what services you provide. You can also join local business groups, Facebook pages, and more to build connections with other business owners. Word-of-mouth marketing is key for micro businesses, so always remember the importance of networking.
Establish Social Media Accounts: Create a social media page on every platform that might be relevant to your business. In today’s world, social media is often the first place prospective clients go to learn more about a business. It’s okay if you don’t have a regular posting schedule yet, but make sure your contact information and business services are clear.

5. Research & Test Your Product

While you already have a good idea of your product or service, there is no harm in extra market research. Fine-tune your offerings by researching similar businesses. Also, don’t be afraid to ask for feedback from early customers about your website or marketing strategies. These insights could be gathered in a quick online survey or through an exit phone call after you are done working with them. Use this information to improve your offerings, and don’t be afraid to test out new ideas.

6. File Your LLC

After establishing the foundation of your micro business, formalize your hard work and file for an LLC in your state. This process will look a little different depending on where you live. Still, for the most part, it will involve filing articles of organization along with an application fee to your state’s corporate filing office. If you are interested in learning more about the benefits of an LLC, be sure to read this guide.

What Challenges Do Micro Businesses Face?

While micro businesses enjoy many unique advantages, they also face some challenges. Here are the top three challenges to be aware of before you launch your micro business.

Securing Financing

Because micro businesses operate on a small financial scale, securing business financing can be tricky. Lenders often view small operations as unstable and unable to handle debt.

If you own a micro business and require funding, look to online lenders. While you may not qualify for a traditional small business loan, you can find working capital through micro loans, even if you have a low credit score.

Attracting Customers

Because you’re working with a smaller budget, you may have a harder time attracting potential customers. Small businesses often have a budget dedicated to marketing, advertising, and networking, while micro businesses don’t.

Luckily, there are plenty of digital marketing tools that are free or inexpensive to implement. In this digital age, commit to building a presence on at least one social media platform. Instagram and Facebook are great places to start. YOu may also consider expanding to Twitter, Pinterest, YouTube, TikTok, or LinkedIn, depending on your bandwidth and target market.

Don’t forget to tap into your personal and local networks. Word-of-mouth marketing is crucial for micro businesses. Send emails from your business email account to your contacts to announce your business and the products or services you offer. Encourage supporters to follow your business’s social media accounts and subscribe to your newsletter.

Multitasking

Although a business made up of 10 employees is still considered a micro business, most are owned and operated by one person. A solopreneur either cannot or will not hire employees, meaning that they wear many hats. They are on their own when it comes to marketing, taxes, operations, and sales.

Some of these tasks can be outsourced to subcontractors, while others can be streamlined using digital tools. Expect to spend a significant amount of time “on” your business rather than “in” your business.

Examples of Micro Businesses

Here are some examples of common micro businesses:

Freelancers: Are you a writer, editor, merchandiser, or consultant? You can build your career as a freelancer or independent contractor. You would take on clients as a micro business rather than as an employee of a company. This means that you would work independently and be in charge of your own business operations.
Event Specialists: Event designers, wedding florists, makeup artists, and musicians are a few examples of independent contractors that work in the event industry. These are micro businesses that market themselves independently to clients for their event needs.
Food truck owners: Food vendors using a food truck or cart typically employ just one or two employees to take food orders, prepare food, and handle point-of-sale transactions.
General Labor: Plumbers, carpenters, and independent mechanics are all examples of micro businesses in the general labor industry. These independent contractors may work with one or two employees who handle the administrative aspect of their micro businesses.
Coaches: The coaching industry is booming right now. You can find a coach for anything, such as relationships, health and wellness, or business. The majority of coaches are solopreneurs who spend just as much time marketing themselves as they do coaching.

How To Get A Microloan For Your Business

As you walk through the steps of creating a micro business, you may notice you need extra capital to get started. There are two main ways to get a microloan for your business. First, you can apply for a loan with a traditional financial institution. Research which banks in your area offer micro loans for small business owners. Look up loan amounts and interest rates before meeting with a potential lender. Be aware that not all banks provide loans in such small amounts, and you may need to seek out multiple options.

The other main option for receiving a microloan is to apply with the Small Business Administration (SBA). The SBA works with intermediary lenders to provide loans up to $50,000 for micro business owners. Find out if there is an SBA office in your area by searching online, or go ahead and research a list of potential intermediary lenders to work with. This will provide you with more information on the application process and potential loan details.

Microlending In Certain Areas

Small businesses are crucial to many local economies, and because of this, private lenders are often available to help micro business owners get started. Private lenders may be able to accommodate special circumstances for business owners in traditionally underserved communities. The U.S. Chamber of Commerce website has an excellent list of resources available for private microloans. These loans could help cover payroll costs, marketing campaigns, seasonal expenses, and supplies.

Micro Businesses Help From Your State

In addition to federal help, there are also state-specific programs that may be available to you. These could provide loans for upstart costs, inventory, and more as you create your micro business. For example, the California Infrastructure and Economic Development Bank offers both jump-start loans and financial relief programs for micro business owners. Look up micro loans in your state online to see what programs you may be eligible for, then compare interest rates and loan terms to find the right lender for your needs.

Summary

Starting your own business can be extremely rewarding. Not only can this accomplishment give you a sense of pride, but it can also help you establish financial security. That being said, owning a successful business will take time and dedication on your part. Research the numerous resources available to help you get started and begin marketing your unique product or service today. You may find that owning your own micro business turns into a fulfilling, lifelong career.

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