September 22, 2021

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Meaning of Microenterprise (Microbusiness) and Key Explanations

Meaning of Microenterprise (Microbusiness) and Key Explanations
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Businesses are usually classified based on ownership. In this instance, there are sole traders, partnership, company, cooperative and public enterprises. Firms can also be classified as size-based. Here, let’s consider Micro Business.

Definition of Microenterprise

A type of small business where the numbers of staff are not more than ten and the asset base is less than 400,000 Naira. It can be referred to as a business with a handful of employees with little capital and asset base. The term micro signifies that the business is tiny when compared to other small enterprises.

Read: Business mantra: Entrepreneurs should be innovative and not stagnant

Key Explanations

A type of small business. It is one of the three types of small businesses, classified based on size. Others are medium and small scale enterprises. All three firms are referred to as MSME (Micro, small and medium scale enterprises).

Numbers of Employees. The number of workers here are very small, it has a maximum of ten workers as classified in Nigeria. In the United States, the numbers of employees are 9. This organization may have as low as one staff. That is, the owner may operate the business by himself.

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A side hustle is an example of a Microbusiness. This is true as only the owner may operate it alongside a regular job. Or may use the assistance of a family member, relatives or friend to carry on the entity. However, a side hustle may become a huge firm with time and may still be run by the owner by a single person. But as time flies, the business type will have to change.

Assets base. In Nigeria, the asset base for Microenterprise is 400,000 Naira. By asset base we mean the net worth or net asset of the business. To calculate the net assets, you add up all the assets of the business and subtract it from the total debts. The figure varies from country to country.

Asset base may also mean total asset. That is, you simply add up the business assets. The Nigeria Federal Ministry of Industry does not state what it means by asset base. Generally, however, asset base is seen as a net asset.

Meaning of Microenterprise (Microbusiness) and Key Explanations

Mohammed Yanus came up with the term micro, to differentiate this special type of small business. He is the pioneer of microfinance institutions (MFIs) and from Bangladesh. Micro Entities are provided with micro credits to meet up their finance needs to grow their business.

How can Microenterprise be formed

It can be formed as a sole proprietorship, partnership or a private equity company. If it is owned by a single person, then a sole trader or private equity company may suffice. However, if it is owned by two or more persons then a partnership or better till a company may be perfect.

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The choice is actually on the owner(s) to decide. As a sole business, it means he or she will enjoy all the profits, and will not have to disclose its revenue or profits to anyone. He will not need to wait for anyone before a decision is made.

For partnership, the partners share the profits according to an agreed profit sharing ratio. As sole proprietors, they can keep the books of account undisclosed. However, when it comes to decision-making all partners will have to make an equivocal choice.

In the case of a private equity firm, it can be owned by at least one person. He makes all the decisions and earns all the profits. But if it is owned by more than one individual, decision is reached by a majority and the profits are shared as dividends. However, the risk is less compared to the other business types. When there is a risk of liquidation, the owners will only lose their capital but not their personal properties.

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Read: Classification of business: Sole proprietorship

Sources of Funds for a Micro Business

The primary source of funds for this business is the amount contributed by the owner(s) as equity. Money can come from family, relatives, friends either as grant, part ownership or as loan. More to this, its owners can source for funds from Angel investors, venture capital firms, banks (microfinance banks) and grants from the government or its agency.

Conclusion

Finally, Microbusinesses or enterprises are small entities with at most ten employees and a four hundred thousand Naira asset base. This is in accordance with the Nigeria Federal Ministry of Industry. Such firms can be a the sole traders, partnership or company. While its sources of fund are mainly capital the owners contributed.

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