What’s the difference between a startup and a small business?

Accounting blog: What’s the difference between a startup and a small business?

To a lot of people, the terms “startup” and “small business” may seem like interchangeable terms. A startup is just a new small business, right?

Wrong. This is a common misconception. In fact, there are key differences between a startup and a small business that make the two quite dissimilar.

What is a startup?

A startup is a new business, that thing is for sure. However, what makes it different from a small business is its scope and main objectives.

Startups develop with the intent to innovate within their respective markets, unlike a small business. A start-up is a small-but-scaleable/sellable, potentially-franchisable or acquisitional business idea.

With a startup company, the initial investment may include funds similar to those for small businesses. Where it differs, however, is in the intent of the investments. Startups will not immediately turn a profit and are instead funded in stages during varying levels of development.

Some investments won’t even kick in unless the startup reaches a particular stage of development. Investors for startups believe in the future market impact and financial success.

Another significant indicator that a business is a startup, rather than just a new small business, is its limitless expectations. Startups aim to intentionally disrupt and hopefully dominating a particular market.

Startups will either rapidly expand into larger markets (scaleable) or merge with/become a division of another company within the market (sellable).

What is a small business?

The biggest differentiator between a small business and a startup is the intent of the company. Small businesses focus on overall profit and maintaining reliable returns instead of growth and marketplace domination.

Small business knows its place, finds its followers and claims a little corner of their local or niche-digital marketplace. They are not typically a unique, market-altering innovation like startups intend to be.

While small businesses may still need funding to get off the ground, investors are typically backing the business plan due to its ability to turn a consistent profit.

Small business owners are more likely to get go the route of small business loans and other debt financing options for business startup costs. The small business model doesn’t require additional rounds of funding for growth.

A typical small business has a higher success-rate than your typical startup, as the cost-to-profit ratio can cause startups to close down at a much higher rate than normal small businesses.

Small businesses will establish a small section of their marketplace and find enough of a local or niche fanbase to maintain consistent profitability for small business owners.

Which one is right for me?

First and foremost, you must define exactly what it is you’re wanting to do with your business. Are you introducing a revolutionary idea or product into a marketplace, or are you offering an established good or service at a competitive rate?

Are you dreaming of franchising your idea across the country or selling it to an international conglomerate? Inversely, does your ideal career involve working from home or finding a beautiful local office space to do what you do best?

These questions are crucial ones in determining whether you want to develop a scalable, sellable startup company or a profitable, secure small business.

One thing is for sure: it is always a smart decision to seek financial advice when starting a small business or startup company.

A small-business financial consultant specializes in helping people develop their business from the very beginning. They can also help make recommendations on things like which type of accounting services you will need and the best way to manage your finances as you start your company and as it grows. 

Small Business & Startup Consultation by Volpe

Volpe Accounting will help you find the best financing options for your business, no matter what direction you take.

Small business & startup financing can be challenging to determine and depends on various factors including location, industry, and market.

There are various options available and Volpe can help you find the one that meets the needs of your business.

Contact Volpe Consulting & Accounting today to receive your FREE consultation!

More from our blog