In the business ecosystem, there are different business models and legal structures. If you plan to start a business, it's essential to understand what micro-enterprises are, as they are one of the most common. At Hispanos Emprendedores, we explain in detail how they work.
Classification of companies
Classifying organizations allows us to understand how they work, to accurately calculate VAT and income tax. Also to promote the liquidity of entrepreneurs because depending on their classification they are granted various benefits. In addition, it allows them to carry out a strategic planning of their finances, operational and technological needs.
One of the most common ways to categorize them is by size . Criteria such as number of employees, revenue, assets, and technological innovation are generally used for this classification.
According to the number of employees, it is defined by the number of collaborators who work in the company. In terms of billing, the size of your income or annual sales is taken into account. Heritage is measured by the relationship between your assets (properties), your rights (credits) and obligations (debts).
While, for technological innovation, the technological tools that the company has are analyzed. Although this element is little used.
In this way we can know that there are:
1-Large companies: These are companies with large amounts of capital and usually have their own facilities. Their sales exceed $50 million and they have over 250 employees . They have an advanced management system and loans from national and international banking institutions.
1-Medium-sized companies: They have a turnover of less than 50 million dollars and fewer than 250 employees . Their areas are defined by function and their procedures are automated.
3-Small businesses: Their business volume is less than $10 million and they have fewer than 50 employees . They are independent and profitable.
4-Micro-enterprise: These are businesses that have up to 10 employees on their payroll and profits of less than 2 million.
But do you want to know more about the latter? Then read on.
What are microenterprises
As we mentioned before, this organization has up to a maximum of 10 employees and a more limited turnover and benefits than the rest. Although the sales limit criterion varies according to each country, for example, in Mexico it should not exceed 4 million pesos.
Their size is small compared to other types of companies , and they are one of the predominant categories in the world's productive sectors. Despite this, they do not have a significant impact on markets because they do not contribute large amounts of capital.
Aside from this, they lack the infrastructure to support a mass production process. However, they do utilize raw materials and labor. Their operations are local and target a very small market niche. It's common for their employees to have family or friendship ties, as these are the small circles to which the owner has access.
Most of the micro-enterprises have affiliated services that are not of the nature of their sector, such as tax advice or logistics. They are developed in agricultural, livestock, industrial, craft, trade, repair and hospitality sectors. Examples of the model are shoe stores, bakeries, hairdressers, beauty salons, locksmiths, creating an application, mobile advertising, certain startups, among others.
They use few materials in their work, but in some cases they can handle large projects. Their owners have control and supervision over the work they carry out.
Microenterprises are created for various reasons, among which the need to generate income to survive stands out. Also for wanting to develop a base to get to install a medium or large company. The microentrepreneur has the ability to run several microenterprises as one more worker.
Types of microenterprises
1-Survival
They are developed out of economic necessity and do not have a capital base to manage their operating costs. They are dedicated to immediate and limited production like street vendors.
2-Expansion
They accumulate more income than the survival ones, but it is not enough for them to grow more.
3-Transformation
This invoice more than the previous two because your income allows you to accumulate capital and thus have a greater chance of growing.
Depending on their activities, they can be productive by converting into raw materials such as shoe stores. Of services that satisfy the needs through their knowledge as do mechanical workshops or hairdressers. Those of commerce are dedicated to the purchase and sale of products, an example is grocery stores.
Advantages and disadvantages of microenterprise
The main advantage is that these types of businesses are a source of income and livelihood for many families. They can be easily modified if they don't work the first time . Depending on the country, they may receive government or bank assistance.
Their structure is easily modified, they generate employment, and they are creative with limited resources. Furthermore, decisions are made quickly because the owner is in constant contact with the business. Establishing a business can be the first step for entrepreneurs to organize their project . Formalizing it allows them to access banking services and grow.
They adapt better to economic changes, they need less investment and administrative structure costs. With the microenterprise, a greater distribution of the income generated is achieved, the attention is direct and personalized. They can be born anywhere, becoming the spirit of the socioeconomic organization of the area where they arise. Meet your immediate needs at lower prices and high quality.
Limited production is one of its disadvantages, affecting only the immediate area, as are difficulties in obtaining credit. The use of technology and equipment is scarce, limited, or outdated, requiring greater effort from workers who lack specialized skills.
Nor do they have references to hierarchical structures, moving away from the models of large companies and the salary is lower.
Importance of microenterprise
These organizations have become important in the economy of the countries, especially for the vulnerable sectors. They represent an opportunity for the subsistence of people who are unemployed or housewives.
Crafts, small-scale gastronomy or professional consultancy can eventually become a larger-scale SME.
The United Nations considers micro-enterprises as "the backbone of most of the world's economies," and has celebrated Micro-, Small and Medium Enterprises Day every June 27 since 2017.
According to the World Bank, they represent more than half of the formal jobs on the planet. The entity points out that they provide effective solutions to fundamental problems.
In Latin America, the support of the state has helped micro-enterprises to multiply, contributing to economic growth and job creation.
They contribute to increasing national income and boost local economic activity. It's considered one of the best ways to start a business . They combine the excitement of creating a business with the skills of a team that aims to become a large company.
They supply those market niches that large companies don't reach. They have become consumers of capital goods, that is, the primary buyers of machinery produced in their countries.
At the same time they are producers of a large part of consumer goods and intermediate goods for industries.
Some microenterprise data
-They represent more than 90% of all companies, 70% of total employment and 50% of GDP. (UN)
– Nearly 62% of small businesses run by women have been severely affected by the crisis. (UN)
– Micro, small and medium-sized enterprises make up 99% of the industrial fabric. (ECLAC)
How to start a micro business?
For those who dream of creating their own business and being their own boss with a micro-enterprise, there are some guidelines to follow. It's essential to have a plan to succeed. The first step is to define what the business will do and the characteristics of its target audience.
Set your goals, then choose your team well if you need one. It is best to surround yourself with people who know you and understand how important the project is to you. Take some time to decide all aspects of the company, the name, heading, and when to start each phase. All elements must complement each other.
Creating a business plan is essential for getting your business up and running. This will help you understand everything you'll need to make it successful and the timeframe required.
On the other hand, it is essential to have an amount of money greater than that required to start up the microenterprise. This forecast is taken in case extra expenses appear. Calculate all the expenses and investments in detail so as not to fall into potholes that you cannot solve.
You must have a website, whether you sell online or not. It's essential for any business these days because having a platform to provide information to potential customers is always beneficial. Use promotional materials like business cards, brochures, pens, etc., as well as social media.
Find a place where it will work and develop the product or service. When you check that everything is ready for the launch, organize an event for the inauguration. Remember that it is essential to plan, organize, execute and supervise all activities to correct failures.
For a micro-entrepreneur to manage resources effectively, they must handle different areas of management . In terms of finances, or business money, the entrepreneur must obtain, invest, lend, and collect payments. They must control it through records of income, expenses, and inventory.
In the production aspect, it proceeds to transform the raw material into products. Its function is to set the characteristics, materials, design, process, quantity, etc. You must lead the work group with an example of organization, punctuality, cleanliness and other aspects.
While, in the sales process, in addition to meeting the needs of the client and treating them well, it is important that you listen to their suggestions. A microenterprise is profitable when it sells enough to cover expenses, family needs and to continue investing.
Difference between microenterprise and small business
These two concepts are often confused. Micro-enterprises are generally newly established and have less of a presence than small businesses . They start with a small amount of capital and are found all around us.
On the other hand, small companies are larger, they have between 11 and 30 workers, in some countries up to 50. They are sole proprietorships or companies. They are present in all industries, operating as convenience stores, manufacturing plants, restaurants, inns, law firms, dry cleaners, etc.
They have a patrimonial, financial and administrative structure superior to that of the microenterprise with which they can give mortgage guarantees and request loans. They produce small quantities of products or services, they have a more organized process. In addition, they have a local and regional range of action. Its growth, division of functions and personnel is greater.
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