Published on: February 25, 2021 Last modified: March 2, 2021

Pros and Cons of Starting a Microbusiness

Table of Contents
    Add a header to begin generating the table of contents

    Many Americans are part of a microbusiness, even if they don’t know it. The COVID-19 pandemic has caused record job losses, leading to more people embracing the gig economy for additional income to offset their costs.

    The problem is that those who are operating microbusinesses may not know how to claim microbusiness income during tax season — or that they need to do so at all. Do you have a side hustle driving for Uber, or are you part of a multilevel marketing opportunity selling wellness products?

    These are both considered microbusinesses, and could end up causing you to misrepresent your earnings if you aren’t careful. This guide will walk you through everything you need to know about operating a microbusiness to help you keep those hiccups to a minimum.

    question cost concept

    What Is a Microbusiness?

    The Small Business Administration (SBA) defines a microbusiness as a business with one to nine employees. A few facts to keep in mind:

    If you’re an independent contractor, from a real estate agent to running an Etsy store, you own a microbusiness and need to be tracking your income and taxes accordingly. If you’re interested in going this route, make sure you understand the pros and cons before you do.

    man standing in front of microbusiness

    Pros of Owning a Microbusiness

    Let’s talk about the good stuff first. There’s significant growth in microbusinesses because people want to stay close to home. Home-based businesses are especially appealing to women with families because they offer perks that a traditional 9-to-5 office job might not. These include:

    Flexibility

    Many people would love to be able to work on their own terms and schedule, or to take on the clients and team members they want instead of being told who they have to work with.

    That especially appeals to those juggling childcare or caring for family members. A microbusiness offers the flexibility to work on your own schedule and indulge in your inner night owl, and may even mean you are able to work from anywhere or travel while still getting things done.

    Low Overhead

    Running a microbusiness generally doesn’t cost a lot to start. You may have equipment or inventory expenses if your microbusiness is photography or a retail-from-home venture, but you’re not paying additional rent or utilities. Filing paperwork to get started doesn’t cost much in most states, either, ranging from averaging around $300.

    Bonus: If you’re operating a solo venture, you don’t have to pay anyone’s salary.

    Independence

    Owning a microbusiness offers the promise of being in control of your fate. This is appealing for anyone who’s been frustrated by corporate life restrictions. It’s tantalizing to think of working with less red tape, fewer levels of approval, and fewer meetings at 4 p.m. on Friday. 

    Being your own boss is the American dream, right? There’s a real satisfaction to doing work you love for yourself instead of for someone else, likely someone else you’ve never met. Creative professionals have the added benefit of only taking on the projects that satisfy them the most.

    irs notice of deficiency

    Cons of Owning a Microbusiness

    Everything has a flip side, though, and that includes being your own boss. A lot of microbusinesses fail. That failure is often due to the entrepreneur not being fully aware of the risks of starting a microbusiness ahead of time. Here are some of the challenges you need to be aware of:

    Financial Risk

    It costs money to start a business, even if there are no payroll or rent expenses. Those costs may include incorporation fees, other legal fees, equipment, or inventory, which may eat into your savings or cause you to go into debt. You may have cash flow issues, depending on the nature of the business and the clients or market you serve.

    Make sure that you always understand your financial position and what risks are acceptable to take. If you have a financial planner or investment advisor, make sure they are always looped into what’s going on with your business.

    Time Commitment

    You may not get days off when you own the business, at least in the beginning. There could be late nights, weekends, holidays, and other less-desirable timeframes when things need to get done. Even if you have a business such as construction that tends to operate in more “set” hours, your off time will be occupied with:
    Being your own boss may include a lot of detailed work that isn’t pleasant but needs to be done, but the good news is such time constraints typically decrease as your operations become more established.

    Stress

    As a business owner, it’s all on you. The success or failure of your business and the way you manage your money is all your responsibility. If a mistake is made, a deadline gets missed, or a piece of vital equipment goes on the fritz, you’re the only person who can address it. Some people thrive on that challenge, but it’s too much to manage for many. Be aware of the stress that owning your own business can cause and skills for coping with that pressure.

    All that said, many people see the pros of owning a microbusiness as greatly outweighing the challenges — and you can definitely start your business in a way that helps minimize them.

    pushing-forward

    3 Ways to Start a Microbusiness

    If starting a microbusiness is right for you, you can avoid the common pitfalls by laying the proper groundwork first, including operating systems and paperwork. Here are a few tips to help you get up and running:

    1. Set Up an Accounting System First

    Whether you decide to use spreadsheets that you hand off to a pro or a small business accounting software, start your accounting correctly from the beginning. Don’t wait until you’re several months in to go back and try to figure it all out.

    2. Rely on Professional Advice

    Don’t try to answer legal or business tax questions you may have by using internet research. Investing in professional advice you can trust now will help your business run better and pay off down the road. Not sure if you should start an LLC or how to file taxes as an LLC? Ask a business tax attorney, not your Facebook friends.

    3. Understand It’s an Investment

    You can’t make money without spending money. Whether that’s spending on digital advertising, an internet upgrade, or basic equipment, you may need to spend money to make your business work for you. Don’t shortchange your business – or yourself – by trying to “make do.”
    data analysis icon

    Ask an Expert Before Starting a Microbusiness

    Becoming a business owner isn’t for the faint of heart. Although it can be incredibly fulfilling, it’s also a complex adventure on which to embark. Trust the professionals at Silver Tax Group to answer all your questions about forming a microbusiness and how it affects your business taxes and overall financial picture. Our business consulting experts would be happy to help address your microbusiness questions today.

    Share The Knowledge! 😊

    Share on linkedin
    LinkedIn
    Share on twitter
    Twitter
    Share on facebook
    Facebook
    Share on reddit
    Reddit
    Share on whatsapp
    WhatsApp
    Share on email
    Email
    Share on print
    Print

    Get More Knowledge

    Ready to secure your financial future? Subscribe Today For Tax Knowledge Tomorrow

    JOIN 2,000+ OTHERS. YES, IT’S COMPLETELY FREE. ZERO SPAM, UNSUBSCRIBE AT ANY TIME.

    Search Our Tax Knowledge Base

    Search
    Generic filters
    How Can we help?

    Don’t worry, our consultations are 100% Confidential & 100% Free