The most common way to define a micro business is through the number of employees in the organization. A business with 1 to 9 employees is usually termed as a micro business. Size and scale are also factors used to define micro-businesses. Companies that function as sole proprietorships and earn annual revenue less than $250,000 are also termed micro-businesses. In 2016, the United States had 4 million micro-businesses and these contributed 10% of jobs in the private sector. The number is continuously rising with the addition of new micro-businesses across the state.
Microbusinesses can be considered as a sub-set of small businesses. Small businesses usually register as LLCs or corporations while micro-businesses often start as a sole proprietorship. This is because of the personal tax structure applicable to sole proprietors with lower costs involved. Micro-business owners always have an option to change their registration to LLC or other types as the business requirements change.
The Insurance Question
Every business is exposed to certain types of risks and issues which make insurance an essential requirement for these businesses. Microbusinesses also face numerous challenges so the same considerations should apply.
Microbusiness owners may often face challenges in securing financing from outside investors. This is often because investors may not trust in the new set-ups due to a lack of history of the business and stability concerns. Small and micro-businesses can be significantly impacted by market fluctuations and the financial impacts of such events can be catastrophic for them. Ineffective cash flow management is also common among such businesses due to the inexperience of the proprietor or limited buffer resources. Microbusinesses may also face challenges in expanding their customer base. These businesses usually operate at a very small scale putting them at a competitive disadvantage. Establishing customer loyalty can be a concern for them too.
Employees in micro-businesses may also be prone to various mistakes and errors. This could be due to the lack of experience or the inability of the business to hire people from the top-flight. Such negligence and mistakes could result in complaints or lawsuits filed by the customers.
There’s no doubt that there is a lot of instability associated with micro-businesses. This is why insurance is a necessity for these businesses to maintain business continuity. Without insurance, the damages can be massive and micro businesses may not be able to sustain themselves.
There are different categories of insurance covers; however, it is essential for a micro business to judiciously select the apt categories to make the best use of the limited budget available for insurance and damage cover.
The following are a few categories that are usually valid for micro-businesses across sectors.
- General liability: The insurance type covers physical and property damage. Microbusiness owners may have an office space to interact with the customers and carry out business activities. A customer may visit the office and may accidentally slip facing minor or major injuries. There may be damage to property with events, such as fire, flood, or other damages. General liability insurance protects the micro-business from such risks.
- Professional liability: The insurance type covers the mistakes and errors that may occur as a part of the business activities. This could be due to the negligence of an employee or the lack of knowledge/experience. New micro-businesses often end up making mistakes due to negligence that could lead to lawsuits. Professional liability insurance covers the legal costs and damages resulting from such occurrences.
- Data breach insurance: A majority of the businesses now use digital platforms and applications. Microbusinesses themselves may end up being the victims of a data breach or may end up causing such breaches for their customers. The use of insecure networks and systems may lead to security attacks by malevolent entities. Data breach insurance covers the damages in such events.
The number of micro-businesses is increasing as new business opportunities emerge to provide solutions to the post-COVID world. Several online micro-businesses are being set up with bright ideas, innovative offerings, and a deep passion to make a name for themselves. Like every other business, micro-businesses are also exposed to various challenges. More than most, insurance is necessary to protect micro-businesses from unanticipated events and resulting damages. Insurance cover like general liability, professional liability, and data breach insurance can protect micro-businesses from risks. To know more about the specific solutions to fit your unique needs, connect with us today.