Micro business is defined as the small closely held operation that provides a family a supplemental or primary source of income. They include:
The list goes on and on.
The common thread that binds all of them is the relatively low cost of entrance in the market. In addition there is limited upward mobility. Think about it for just a few seconds. What is the likelihood that a sub shop can go national? How much money do you think it costs to create a simple territorial franchise network? It would take at least $250,000 of capital to draft the legal documents and market this new venture.
All of this to compete against the national sub chains? In a limited geographical area?
What are the drawbacks to remaining a micro business? Are there any real benefits?
Let’s find out.
Risks of Micro Business
There are many risks associated with micro business and they include:
1) High Susceptibility to Local Economics – many towns and small cities rely heavily on a large business or trade operating nearby that employs more than 10% of the population. Any change in that industry’s status reduces employment which in turn decreases discretionary dollars spent at the micro business level.
2) Reliance on Others – often the business relies on the activity of their customers or vendors. A small business needs other businesses in the strip mall or local shopping district to stay in business and assist in attracting potential customers. If one tenant fails, often a cascading effect begins.
3) Key Man – imagine if the matriarch or patriarch became physically disabled. Who now leads? What about death and with it the loss of secrets such as recipes or experience?
4) Never Ending Stress to Make a Profit – often this forces the owners to open additional hours taking away a family member from the family obligations shifting responsibilities to another. Without profit the family’s financial status is in jeopardy.
Even with all these drawbacks, there are some benefits making owning a business worthwhile.
The rewards for the nontraditional employment generally includes financial gain, independence and a sense of personal pride. Each of these are explained in more detail below.
In most cases the net profit from a small business doesn’t even cover the value of the time invested by the owner. But every now and then there is a windfall or a great year. When this happens the bottom line soars and the owner sees money deposited into his personal bank account. This is the number one reason most folks go into business for themselves – making more money than working for somebody else.
It is the old Risk-Reward concept of capitalism. Money is wonderful but sometimes another reason to go into business for yourself is appealing.
The personal freedom and self-reliance associated with owning a business are other primary reasons to operate a micro business. When you own a small business you set the policies and procedures on how you want your business to conduct its operations.
Unfortunately this isn’t always true. Sometimes the small business signs away their rights. An example is in lease negotiations. Most malls require the respective stores and kiosks to remain open during normal business hours seven days a week. For the mall, they can’t have shuttered doors at the discretion of the owners.
Overall it’s the ‘I’m my own boss’ feeling when you own your small business.
The third benefit relates to personal pride in the hard work and testament to your idea if successful. There is no other feeling like accomplishment.
Only you can determine the value of owning a micro business.
Summary – Micro Business
Micro businesses are all around us. They are your small businesses ranking from your local dry cleaner to small retail outlets. Most of your independent restaurants are micro businesses. A closely held family operated business has several risks including the local economy, key man issues and a strong reliance on others. Benefits include possible financial gain, independence in operation and personal pride. ACT ON KNOWLEDGE.
Do you want to learn how to get returns like this?
Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.
There are four key principles used with value investing. Each is required. They are:
- Risk Reduction – Buy only high quality stocks;
- Intrinsic Value – The underlying assets and operations are of good quality and performance;
- Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
- Patience – Allow time to work for the investor.
If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above.
Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:
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Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:
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