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Starting a business

Micro-Business vs Small Business: Key Differences

By QuickBooks Australia

Published on June 5, 2024Updated on January 6, 2025

If your business runs on an extremely small scale, you may be considered a micro-business. This smaller classification of a small business means you operate with a very minimal amount of staff, receipts, and business activity.

Micro-businesses represent around 25% of all businesses in Australia – a pretty hefty chunk of our business landscape when you think about it. Although the difference in classification may not seem too important, there are a number of things to keep in mind if you do operate a micro-business.

Micro-business vs small business

So, what is a micro-business, and how does it differ from a small business?

All micro-businesses are small businesses. The crucial difference is the number of employees: a micro-business employs fewer than six people.

This table provides an overview of the key differences between micro-businesses and small businesses:

	Micro-business	Small business
Number of employees	Typically has fewer than 6 employees (including the owner)	Generally employs 6-15 people
Annual revenue	Earns less than $2 million annually	Can earn up to $10 million annually (although the majority of Australian small businesses earn less than $2 million annually)
Business structure	Commonly operated as a sole trader or family business	More likely to have formal structures like partnerships, companies, or trusts
Market reach	Often serves local or niche markets	May have a broader market reach, potentially including interstate or international customers
Resources and infrastructure	Limited access to resources, often run from home or small premises	More access to funding, equipment, and commercial spaces
Scalability	Typically focused on maintaining operations rather than growth	More likely to aim for growth and expansion over time

There are other guidelines that can also define whether your company is micro or small. If your company requires less than $50,000 to start or if your company does not access traditional capital loans, you are running a micro-business.

How many employees does a micro-business have?

A micro-business in Australia typically has fewer than 6 employees, including the owner. This category also includes non-employing businesses, such as sole traders who operate without additional staff. Their compact size and limited workforce distinguish them from larger small businesses.

Micro-business examples

Here are some common micro-business types:

Freelancer: E.g. graphic designer, copywriter, photographer, web developer
Small, independent retailer: E.g. boutique owner, shop manager
Independent contractor: E.g. electrician, plumber, carpenter, consultant
Ecommerce business: E.g. Online store owner, digital marketing specialist
Startup business: E.g. Founder/CEO, operations coordinator
Street supplier: E.g. Food stall operator, mobile barista, street performer

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Challenges of micro-businesses

Micro-businesses face additional challenges that other businesses, including larger small businesses, do not face. These can include:

Difficulty hiring employees and attracting talent due to lack of exposure
A smaller customer reach compared with larger companies
Traditional financial institutions may refuse to issue your business a loan
Difficulties in developing lines of credit with suppliers due to the increased risk of default
The requirement for micro-business owners to be a jack-of-all-trades, and consequently spreading themselves too thin

The good news is that technology has caught up with the needs of entrepreneurs. Today, there are a range of time-saving tools designed to support small business owners in areas where they don’t know it all.

For example, you can automate your business’s digital marketing with social media scheduling tools; chatbots and virtual assistants can shoulder some of your customer service load; and cloud-based accounting tools such as QuickBooks Online.

What are the tax considerations for micro-business owners?

Most micro-businesses are registered as self-employed sole traders, which comes with far fewer tax obligations than if you register your micro-business as a company. If you choose to operate as a sole trader, you are taxed at your personal tax rate. Most micro-businesses are more likely to operate under this structure because it takes less effort to register and file paperwork.

If you expect your micro-business to have an annual turnover of $75,000 or more, you’ll need to register for Goods and Services Tax (GST). And you’ll likely need to put money aside to pay your quarterly Pay as You Go (PAYG) income tax instalments. As a sole trader, you can claim most business expenses as tax deductions to reduce your taxable income.

If you incorporate your business, it will be taxed at company tax rates. An incorporated business is considered a separate legal entity and must register for a Tax File Number (TFN) and potentially an Australian Business Number (ABN). The company is subject to the corporate tax rate on its profits, which is currently 25% for base-rate entities (businesses with an aggregated turnover of less than $50 million).

Payroll

Micro-businesses are in a unique position regarding cloud payroll software. You may have a few employees which require you to perform payroll functions and pay required payroll taxes. However, you may not have enough employees to warrant a large-scale payroll system or reporting system. Your micro-business is better suited to a flexible system that doesn’t require a lot of setup. As your business grows, having a larger infrastructure becomes more important – but it’s hard to justify a large-scale implementation for a minimal need.

Cost-cutting while maximising revenue

Bigger companies can trim operations. Micro-businesses must grow them. A micro-business may just be a specific type of small business, but it faces unique challenges that force it to operate in different ways to other companies.

Your micro-business will have different operating goals than a larger business. It will have fewer expenses than a larger company. Because of this, your goal should be to increase revenue. While many businesses try to cut costs, your costs are probably already low. As such, a major difference between a micro-business and a small business is the way the micro-business improves its bottom line.

How do you start a micro-business?

Here are some things you’ll need to consider when starting a new business venture:

Business plan: Your first step will be to write a business plan. This will help to clarify your goals, identify weaknesses, and figure out how much funding you’ll need to get started.

Business structure: Our guide on choosing the right structure for your business contains guidance on how to get this right.

Business name: It’s very important to find a suitable name for your business. Discover three steps for choosing a business name.

Business registration: You will need to formally register your business with state and local authorities. Visit our guide to registering a business to find out more.

Business bank account: This will make it possible to manage your business’s cash flow. Learn how to open a business bank account.

Small business insurance: You will need to insure your business to stay covered in the event of a natural disaster, burglary, or lawsuit. Find out more about types of business insurance.

Marketing: A marketing plan is essential for business success. Discover how to create a marketing plan.

Starting your own micro-business can be incredibly rewarding. It’s an opportunity to run your own race and is relatively easy to set up. Your ongoing success will depend on your capacity for hard work and your ability to wear a lot of hats. Get it right and it could be the best decision you’ll ever make.

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Micro-Business vs Small Business: Key Differences

Micro-business vs small business

How many employees does a micro-business have?

Micro-business examples

Grow Your Business with QuickBooks

Challenges of micro-businesses

What are the tax considerations for micro-business owners?

Payroll

Cost-cutting while maximising revenue

How do you start a micro-business?

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