Microbusinesses

SmallBusiness.com: The free small business resource

A microbusiness is generally defined as a small business employing fewer than five persons. Some organizations, such as the National Association for the Self-Employed and the American Association of Microbusinesses, expand this definition to include small businesses with fewer than ten employees.

While quantitative definitions such as these make research possible, they remain somewhat imprecise due to the fact that microbusinesses are defined less by their size than by the way their size dictates how the operation. Therefore, The MicroEnterprise Journal defines a microbusiness as

a business that is so small that no one person working in the business (including the business owner) performs only one task or job for the business, and in which all persons working in the business are responsible for multiple areas of management, production, sales and administration.

Microbusinesses comprise the single largest size category of U.S. firms. The U.S. Census Bureau and the Small Business Administration's Office of Advocacy have released size class data showing that firms with fewer than five employees made up 22.1 million of the nation's total 24.4 million firms in 2003 (the more recent year for which data is available).

The largest and fastest group of microbusinesses are non-employer businesses -- defined for Census Bureau purposes as firms without paid employees (other than the business owner) and with between $1,000 and $1 million in annual revenues. In 2003, there were 18.6 million non-employer businesses in the United States, up from 17.6 million the previous year (an increase of 5.7%). Non-employers alone make up 76% of all U.S. firms.

Overall, microbusinesses with fewer than five employees comprise 90.7% of all U.S. firms, while non-micro small businesses make up 9.3% of the U.S. business population. Large firms with more than 500 employees make up less than 1% of all U.S. firms.

Until recently, the economic role played by microbusinesses was not well understood by either economists or policy makers. However, more recent research is promising in its segmentation of firms by size class and its attention to the differences between microbusinesses and non-micro small firms.

For example, a recently released data set from the Labor Department's Bureau of Labor Statistics found that microbusiness employers are less severely impacted by economic downturns in terms of net job loss/creation. Thus, these very small businesses act as "shock absorbers" for the labor market during downturns and recessions.

More research is needed before the full contribution of microbusinesses -- as well as their full potential -- can be wholly understood.