The Top 4 Challenges for Microbusiness Owners and How to Deal

“It's not the size of the dog in the fight, it's the size of the fight in the dog.” — Mark Twain
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Be prepared for the unique challenges — and rewards — a microbusiness presents. (Photo: mavo/Shutterstock)

The U.S. Small Business Administration (SBA) defines a small business as enterprises having fewer than 500 employees. But the needs of a “microbusiness,” which have nine or fewer employees, can be very different than those of a small business with more staff.

To learn more about the unique challenges faced by these tiny enterprises, NCR Silver spoke with Donald Smith, director of entrepreneurship education at the SBA, and Katie Vliestra, vice president for government relations and public affairs with the National Association for the Self-Employed. Here are the four issues they said are most commonly faced by microbusiness owners, and some advice on how to overcome them.

Turning their vision into a reality

According to Smith, most microbusinesses are owner-operated, meaning the owner is the business’ sole employee. “Because of the size of their business, they are often going at it alone,” he said, and operate more like a freelancer than a small business.

Many times, this means these “solopreneurs” haven’t created a formal business plan. And without having a plan to follow, you’re driving blind.

“I can’t overemphasize the importance of developing a business plan,” said Smith. Whether you’re looking three or five years into the future, creating a business plan helps you consider the different stages of your growth and how to manage it as you move from a vision to a full-scale business, he said.

Accessing capital and managing cash flow

For any entrepreneur, accessing enough capital to get your business off the ground and growing can be a challenge. While microbusinesses may initially require less money, it can be harder to get the funding they need to stay afloat as they get established.

Related: Small Business Guide to Cash Flow Management

“For a microbusiness owner, there is less available between their personal finances and their business finances,” said Smith. “One slip on the personal credit side can adversely impact their ability to get capital for their business venture. It’s the same challenge that a traditional entrepreneur will confront; however, there’s much less room for error when you’re a microbusiness owner.”

Vliestra suggested owners try to keep at least a year’s worth of cash on hand while they’re getting started. “But that’s hard to save up for,” she admitted. She said many entrepreneurs start off with a bang and experience a year or two of extraordinary growth, but “then all of a sudden things slow down and they haven’t thought about how to see their business through both the highs and the lows.”

She also advised making sure you have a good invoicing system and legal agreements in place, to ensure you’re covered in case you have to go chasing down money from slow-paying clients.

Related: How to Start a Business When You Have No Money

Moving from owner-operator to employer

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One of the biggest transitions for microbusiness owners is hiring the first employee and no longer acting as sole operator. (Photo: wavebreakmedia/Shutterstock)

The next challenge is knowing when it’s time to hire your first employee. Transitioning from being your business’ sole employee to being an employer can be difficult, said Smith.

Microbusiness owners can’t add the human resources they need to grow their business without having enough cash flow to pay them for their work. But how can you take on that new, big job when you don’t have anyone to help you with it? It can be a Catch-22.

“That makes it especially difficult for a small business — especially the single business owner as the employee — to go from one (being him or herself) to two employees,” said Smith. “Just the scale of having a business that small makes it challenging to grow beyond that initial stage.”

If you’re considering adding your first employee, it’s best to talk with your accountant and a small business attorney to make sure you’re fully prepared for what that means.

“You may find that it’s not that $20,000 contract that allows you to take on one more full-time employee — it may be a series of contracts that puts you in cash-flow position to bring on one person and keep them on, which then allows you to separate the labor,” said Smith. “Then the owner can spend less time providing the service or producing the product, and they can direct more time to investing in the growth of the company.”

Keeping growth manageable

Vliestra said another big challenge for microbusiness owners is managing the pace of their growth — if they want to grow at all. “It’s an intentional decision,” she said. “I think there are many self-employed individuals who have found their niche. They’re successful, they can support their families, but they’re not interested in growing their business — and that’s ok.”

While there’s a lot of talk about high-growth business, it’s not right for everyone, she said. Sometimes the realities of growth don’t make sense for what an owner wants from their microbusiness.

“A lot of our members have a lot of opportunity to grow their business, but they don’t want to deal with the regulatory issues, they don’t want to deal with the labor laws, and they don’t want to expose themselves to a higher legal liability. So they keep their business manageable and in-house, and they make a great living and provide for their families,” she explained.

Conversely, many entrepreneurs own businesses that require more labor or are intentional about growth. The key is making sure you’re ready for the realities of that growth, said Vliestra, and deciding if it really makes sense for you and your business.

Related: 6 Ways to Become a Growth Hacker for Your Small Business

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