Small Businesses, also called small enterprises, are privately owned companies, partnerships, or singular ownership that have less than five employees and/or significantly less yearly revenue than a normal-sized corporation or business. They are normally run by the owner(s) rather than by an outside board. They are considered to be in the same legal category as corporations. But unlike corporations, they are not required to file reports with the government’s enterprise registry. This is because unlike corporations, there are some laws that only govern the state level operations of Small Business.
Unlike large corporations, there are some differences between micro-businesses that are considered to be an exemption. The most common exemption is one under the law that allows for intra-corporate transfers. This means that even though a company has two owners, it can incorporate itself under one set of federal and state laws.
In order to understand the difference between micro-businesses and large corporations, you must first look at what the average annual receipts are for these two types of organizations. We can start by comparing what we call a “micro-cap” to what we call a “small cap.” A micro-cap organization has one to five employees. On the other hand, a small cap business has one to ten employees. The micro-businesses do not have the typical executive management levels found in larger businesses.
In order to understand what the differences are between micro-businesses and sole proprietorships, you must look at how these two different types of business structure work. There are differences not only in the number of employees but the type of structure each business owner has. The most common forms of organization are: sole proprietor, partnership, limited liability corporation, and corporations.
Solicitors are the middle man. They act as a go between for the customers and the business owners. They can be solo, partners or a mixed size corporation. This is one of the key differences between sole proprietorships and small businesses. While sole proprietors are allowed to act like private investors, they cannot use their personal wealth or assets to run the business.
What are the size standards? There are no minimum size standards for most companies. Most have a one-person startup limit or a one employee maximum size. One of the key takeaways is that small business owners need to understand that they need to set their sales and employee numbers appropriately. If they don’t, they will find that the business isn’t very successful. Set your numbers appropriately because this will be heavily impacted by your funding and working capital resources.
Many new businesses set their minimum numbers too low and discover that it becomes difficult to raise additional financing. The key takeaway here is that business owners need to make sure that they don’t ever under-estimate their funding needs. Set your numbers according to your goals. If you want to double your annual revenues then you will need to raise capital at a greater investment than if you want to quadruple your annual revenues. It is critical for all small businesses to raise enough capital to cover growth costs and help them maintain a positive cash flow. Many new businesses underestimate these requirements and find themselves struggling to keep afloat.
There are many ways to calculate the size of your business. Some of the best tools available to small businesses include the Small Business Administration’s Small Business Owners Guide to Calculating Subsector Average Annual Receipts, Small Business Association’s Small Business Fixtures and Costs, and The Conference Board’s Retail Management Fixtures and Costs. The Small Business Administration provides a free Small Business Fixtures and Costs informational packet. All of these resources will help you understand how to accurately determine your business size and your funding needs.