Freelancer, sole trader, small businesses, micro businesses; what’s the difference? Honestly, not a lot. The main variances are the way business structures are set up and how many people are employed. A freelancer is typically one person operating as a sole trader while a small business can be one or a few people working for a business. They may have a director, shareholders or employees (again, depending on the structure).
Micro businesses lay somewhere in the murky waters between a freelancer and a small business. Generally they are small businesses with no more than ten employees, although it may also just be one person who is a freelancer, working on an enterprise. The EU definition of a micro business is one with a turnover of less than £1.7 million – so 95 percent of businesses come under the heading ‘micro’.
There’s a number of different reasons as to why the micro business has blown up, one being that in the past few years, the government has leant towards treating businesses of this size differently to others. The targeted legislation and support for these businesses has increased their popularity, but there are still a few concerns.
With 95 percent of small businesses qualifying as ‘micro’ there have been calls to change micro business specifications to only include businesses employing five or fewer people. This way legislation could be targeted more effectively and help sole traders and micro businesses break free from the ‘red tape’ that stifles them.
Increase in the popularity of micro businesses (for our sake, let’s say businesses with five employees at most) has partly been due to the increase in crowdfunded projects. Although technically around for centuries (books were often crowdfunded in subscription schemes) crowdfunded projects have really come into their own in the past few years.
Allowing consumers to choose products before they’ve even been manufactured has allowed a whole new series of supply and demand – and has meant the little guy can come forward with great ideas and little money, and still have an idea created.
A huge part of the reason why micro businesses are becoming increasingly popular is because the face of the business is the one that’s interacting. With few people in a business, it makes it less anonymous who you might be speaking to, and can encourage customers to engage.
We love it when we know exactly who we’re talking to, and speaking to someone at the forefront of their business makes it seem nice and homely – rather than a large building filled with people mindlessly working.
We’re not just more inclined to speak to smaller businesses – we’re more inclined to believe them too. If a customer is willing to open up to a business, their feedback is more valuable and the likelihood of them returning as a customer is too. Honesty really is the best policy!
Freelancers and micro businesses have benefitted hugely from online marketing techniques which are cheap and easy to execute. Social media and email marketing campaigns make it easier to connect with customers and have begun to close the gap between large corporations and smaller businesses. More small companies rely on online rankings – meaning they have a better chance of competing with the bigger brands.
The rise of the micro business means there’s a big chance that a realistic specification of the difference between small business and micro business should be on its way – hopefully followed by some legislation changes. Keep your eyes peeled for any updates!
Is your business a micro business? Would you like to see the government change the current system to make tax and accountancy easier for small and micro businesses? Leave your comments in the description below!
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We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!