What is a Small business?
A small business is commonly classified as a business with less than 500 employees; however, the Small Business Administration’s definition of a small business is a bit different because it varies by industry. The SBA, for most industries, defines a small business either in terms of the average number of employees over the past 12 months, or average annual receipts over time.
But small businesses generally meet the following standards:
Have fewer than 500 employees
Less than $7.5 million in annual receipts
Independently owned and operated and is not dominant in its industry on a national basis.
As of 2018, there were 30.2 million small businesses in the U.S., according to the SBA. That means that 99.9% of the businesses in the U.S. are considered small businesses.
Some of the most common small businesses include IT, bookkeeping, accounting, childcare, real estate, cosmetology, repair services, catering, and restaurants.
What is a Micro-business?
Although there is no standardized definition that stops a micro-business from also being labeled a small business, there are a few differences between the two. A micro-business is a type of small business that operates on a “micro-scale“.
According to U.S. Small Business Administration Mid-Atlantic Acting Regional Administrator Steve Bulger, “By definition, micro-businesses are a subcategory of small business, with sales and assets valued at less than $250,000 per year and less than five employees, including the owner”.
Although those numbers can vary slightly, micro-businesses generally meet the following standards:
Have fewer than 10 employees, including the owner
Less than $250,000 in annual sales
Required less than $50,000 to start
Despite their small size, micro-businesses are the most common type of employer firm, with 3.8 million micro-businesses being in operation in 2016, most operated by a single person.
Some of the most common micro-businesses include catering, childcare, freelancing, photography, computer services, house cleaning, event planning, accounting, and cosmetology.
Micro-business vs. Small business
In conclusion, although all micro-businesses are technically small businesses, the operating costs and revenue collected are often significantly higher for a small business as it scales up. Micro-businesses also face additional challenges that small businesses do not face.
Traditional financial institutions often refuse to issue loans if they believe the business is too small. Micro-businesses also tend to have a more difficult time developing lines of credit with vendors because of the increased risk of default.
But with micro-businesses responsible for more than 41 million jobs in the U.S. private sector, these entrepreneurs with a business of five or fewer employees play a crucial role in the U.S. economy and warrant their own market representation.