Small scale, big possibilities.
Microbusinesses (aka microenterprises) are defined by their small size, yet they’re making a major impact on the U.S. economy. By the most common definition, microbusinesses have fewer than 10 employees, but collectively, they play an outsized role in the labor market, accounting for 11% of job gains in recent years. Additionally, there are over 40 million non-employer microbusinesses (aka solo entrepreneurs or solopreneurs) in action today.
Whether you’re an enterprise of one or have a few team members on your payroll, running a microbusiness can be a rewarding experience. Advantages include low entry and overhead costs and the opportunity to differentiate by specializing in a niche that aligns with your skills, interests and values. But microbusinesses come with their fair share of risks and drawbacks, like limited access to resources and a high potential for owner burnout.
To help you maximize the pros and minimize the cons, consider these 10 actionable tips for running a successful microbusiness:
1. Choose the Right Entity Type
Many microbusinesses start as sole proprietorships, but other entity types can provide enhanced benefits. Forming an LLC (limited liability company) can help protect your personal assets against legal judgments. The process is relatively easy and inexpensive, with minimal ongoing compliance requirements and formalities. If you have a business partner, consider forming an LLP (limited liability partnership). Once you’re an LLC, you may have the option to elect S corporation status with the IRS, which can help you save on self-employment taxes.
2. Separate Your Finances
To simplify bookkeeping, ease tax worries and preserve legal protections, don’t mix business with pleasure. In order to budget and forecast properly and maximize allowable tax deductions without crossing any lines, it’s essential to use separate banking accounts and payment cards for your business and personal transactions. This is doubly important if you’re an LLC or LLP because commingling your finances can allow creditors or plaintiffs to “pierce the corporate veil” and go after your personal money or property. If you use the wrong account by accident, issue yourself a reimbursement and document it.
3. Find Your Community
Business founders have an independent streak, but if you want to succeed in microbusiness, you can’t go it alone. Get to know other entrepreneurs in your geographic area and your field of expertise. Join your local chamber of commerce and check out online forums where microbusiness owners around the globe can network and share ideas. Ask for recommendations for accountants, attorneys and other professional service providers to consult as your business grows.
4. Leverage Digital Tools
With few or no team members on your payroll, you’ll need to rely on technology to automate key tasks. Look into accounting software that integrates with your bank statements, or take it up a notch with an ERP (enterprise resource planning) solution that helps you manage accounting, inventory, HR functions and more. To optimize time management and project collaboration, try out a kanban tool (from the Japanese for “signboard”) that lets you see all your tasks at a glance. If you’re always on the go, enable mobile push alerts to track income and expenses in real time.
5. Craft a Low-Cost Marketing Plan
Marketing your microbusiness effectively doesn’t have to be expensive, but you can’t leave it to chance. Focus on cultivating a vibrant social media presence that gives your customers a sneak peek behind the scenes and leverages user-generated content like reviews and photos to boost visibility and trust. If you have a local storefront, see if nearby businesses would be interested in cross-promotion, which can deliver mutual benefit at minimal cost. Consider providing in-kind support to local events or charities to promote your brand while giving back to your community.
6. Understand Your Cash Flow
Cash flow is the lifeblood of any business, and microbusinesses are at an increased risk of cash crunches. Generating monthly cash flow statements (which break down your revenue sources and how you spend that cash) can help you identify patterns and places where you could cut back. These insights can help you fine-tune your budget and develop realistic forecasts. Building up a cash reserve by automating small, regular transfers into a dedicated savings account is another smart strategy for navigating tight spots.
7. Establish Business Credit
Many entrepreneurs rely on personal credit to grow their operations, but this can be risky and limiting. To open a credit file under your business name, secure an EIN (employer identification number) and a D-U-N-S® (Data Universal Numbering System) number. Then, start building a strong credit profile by establishing trade accounts, using business credit cards, and taking out and paying off loans. The key to a good score is the same as with personal credit: Pay your bills on time and keep your credit utilization rate in check.
8. Explore Creative Financing Options
With or without a business credit profile, there are a number of underappreciated ways to raise capital. If you’ve had trouble securing a business loan via traditional avenues, an SBA (Small Business Administration) Preferred Lender can help you investigate affordable, government-backed borrowing options. Crowdfunding platforms are also gaining popularity as a way to access capital in exchange for equity, debt or rewards. If you need quick cash, look into invoice factoring (which leverages your accounts payable) or a merchant cash advance (which leverages future sales).
9. Pay Attention to Cybersecurity
Fraudsters used to target only corporate giants, but microbusinesses are now in the crosshairs. This is because smaller entities generally lack advanced cybersecurity infrastructure, and also because cybercrime is a numbers game that requires criminals to cast a wide net just to ensnare a few unfortunate victims. Even if your business is just you and your laptop, you should take basic precautions: Set up a firewall, avoid public Wi-Fi networks, use strong passwords, and back up important files using an encrypted cloud storage service. Also, make sure to keep your devices in sight.
10. Boost Your Microbusiness Banking
Here at Amegy, no enterprise is too small to benefit from our broad range of business banking tools. With an array of checking and savings account options, you can select the features that fit your unique needs and goals. We also offer tailored financing solutions and three business credit card options that allow you to prioritize low rates, cash back or valuable rewards. Plus, check out our Creating Community podcast series to hear how a diverse range of Texas entrepreneurs grew their businesses and paved the way for local communities to thrive.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Amegy Bank.