Micro Business vs Small Business – What Are The Simple Differences?

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Small businesses continue to dominate the entrepreneurial sector of Australia, even to this day. The Australian Small Business and Family Enterprise Ombudsman reported that in 2019, the demographics of small business owners in Australia amounted to about 97%.

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ABS Calculation Table

Additionally, 62.8% of these small businesses are non-employing businesses or sole traders. These statistics could be attributed to the independent Australian spirit and go-getter attitude.

But even with the steady increase of small businesses every year, people might still confuse them for micro-businesses. Below, let’s learn about the key micro vs small business differences, the challenges each of them face, and the different opportunities they bring.

Let’s Talk About Small Business

The definition of SME in Australia describes a range of businesses that are classified based on the number of employees it has or their annual aggregated turnover.

A small business is defined by the Australian Bureau of Statistics (ABS) as a business that employs no more than 20 people. They’re also most likely to be operated independently or under independent ownership. In a small business, owners have more control over the business operations and contribute to most of its operating capital.

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On the other hand, the Australian Taxation Office (ATO) defines a small business differently. Their definition is based on a taxation perspective. According to them, a business that has an aggregated turnover of less than $2 million is considered a small business.

Based on this definition, the total amount of small businesses in Australia would be around 98.4% It’s also important to keep in mind that a business that has less than $2 million aggregated turnover may still have more than 20 employees while a business with more than $2 million aggregated turnover can have less than 20 employees.

Whichever definition you base your understanding on, you still can’t deny their contribution to the Australian economy.

Challenges of a Small Business

Despite small businesses dominating the Australian economy, business owners still face several challenges that can cause others to completely shut their businesses down. Here are four of the common challenges that a small business face:

  • Lack of Time

Small business owners are often responsible for handling most of the tasks such as executing business plans, answering phone calls, filing any paperwork and dealing with clients. Having so much on your plate can be difficult to manage, especially when some tasks require to be finished sooner than others. This could cause other important matters to accidentally slip through the cracks.

  • Difficulty in Balancing Quality and Growth

Growing pains is a given when you’re just starting out with your business. Sometimes, you might end up making choices that facilitate the growth of your business but also hurt it at the same time. Finding the right balance can be difficult. For this reason many look for a small business coach.

  • Lack of Funds

This is an inevitable challenge that most, if not all businesses have faced at one point. It’s especially applicable for small businesses.

Small businesses often do not have enough small business cash flow to keep the business running. Losing one big client can result in the business struggling to keep up with its payroll and bills.

  • Trouble Finding Employees

More often than not, small businesses struggle to find good employees to hire. This is because it can be difficult to compete with the benefits package that larger companies can offer.

Benefits/Opportunities of a Small Business

There’s a reason why most businesses in Australia are small businesses. It might have its challenges, but it definitely still has more perks.

  • Autonomy

When you’re the owner of your own business, you get to have full authority and independence. This autonomy allows you the freedom to run your business the way you like.

  • Financial Independence

Another great benefit to owning a small business is that you get to be in charge of your own finances, including how much salary you can earn and pay to any employees you hire.

  • Job Security

Owning a small business also means that you are your own boss, which means there’s no one around to fire you. If you play your cards right, you’re basically set with a job for life.

  • Lifestyle

When you have complete independence and autonomy over your job, you also get to decide your own work hours. This means you can choose to work at the time you’re most productive instead of being dictated by someone else.

What Is a Micro Business?

On the other hand, a micro business is usually operated and owned by a self-employed individual. Micro businesses also do not usually have any employees. This is one key difference between a small vs micro business.

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In 2019, micro-businesses accounted for 25.7% of all businesses in Australia. Some examples of micro-businesses include designers, life coaches, personal trainers, writers, and other related businesses.

Challenges of a Micro Business

Just like a small business, micro-businesses also face challenges that can make it hard for them to make a name for themselves in the industry. These challenges include:

  • Attracting potential customers

Compared to a small business, a micro-business operates on a much smaller scale. This means that the reach and scope of their customer base are limited. It might be difficult for them to attract many customers, especially when they’re competing against businesses that have the funds, network and resources.

  • Securing funds

It can be hard for a micro-business to secure enough financing since lenders typically view their businesses as less stable. Therefore, they’re less willing to loan to them.

  • Handling several responsibilities at once

Although it’s possible for micro-businesses to have employees, most of them are operated by a single person. Usually, it’s because they lack funds to hire additional people. This then results in the owner having to juggle multiple jobs at once in order to keep the business running.

Benefits/Opportunities of a Micro Business

Despite how challenging handling a micro business can be, it still has its advantages, especially for the community.

  • Job Creation

Although micro-businesses do not employ many staff, collectively they are responsible for employing a large portion of the labor force. They’re a critical source of employment and often a frequent source of entrepreneurship.

Employment by Business Size

As shown in the table above, micro-businesses fall under the small business category and have employed about 41% of the working population.

  • Increased Competition

The number of micro-businesses operating on the market creates competition, especially for larger companies. They have to work hard to not be outdone by smaller businesses which means they are then unable to exploit customers anymore by charging low-quality products at high prices.

  • Supply of specialized products

A lot of micro-businesses are responsible for supplying specialist goods to larger businesses. Their small size allows them to adapt quickly to the changing needs of the market.

  • Lower prices

Micro-businesses often have favorable cost structures which allow them to enjoy lower average costs. This also benefits the customers as it results in lower product prices.

Why would you want to stay either small or micro?

As mentioned above, there are many benefits to having a small or micro business. Freedom? Autonomy? Independence? You can enjoy all those and more with a small or micro business.

You get to decide which direction you want to take your business. Whether you plan on establishing a small business vs micro business, the benefits they bring you are closely similar to each other.

Frequently Asked Questions

What are examples of micro business?

  • Some examples of micro-businesses are lawn and landscaping companies, carpenters, independent mechanics, writers, shoemakers, street vendors and small farmers to name a few.

What is a nano business in Australia?

  • The Australian Bureau of Statistics defines a nano business as a type of business organization that earns under $75,000 annually.

When should I go from sole trader to company?

  • Most people use the amount of taxable income they earn as a basis for when they are qualified to go from being a sole trader to a company. The benchmark used currently is around $117,000.

What is the tax difference between a sole trader and company?

  • A couple key differences between the taxation of a sole trader and a company is that a sole trader pays tax at the individual income tax rate and has a tax-free threshold of $18,200. Meanwhile, a company has to pay the full company tax rate of 30% and does not enjoy a tax-free threshold.

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