What Is The Definition Of Small Business?

What Is The Definition Of Small Business?

Small business – definition

The definition is reliant upon the industry you are serving, a small business generally consist of 250 employees at the most or 1500 employees at the most.These corporations are owned privately by the organization. Partnerships and sole proprietorships with the mentioned number of employees also come under the definition of small business. These businesses generally generate small time revenues in comparison to the large businesses in the industry.

When it comes to the economy of the United States, small businesses contribute up to 99.7% of all the firms in U.S. with over 28 million small businesses operating in the region.

Small businesses – what do they look like?

If you want that answer, it is best to turn to the government – the Small Business Administration (SBA) to be more specific.

Mentioned below are the definitions that SBA gives for small businesses and on what factors do they define the term to begin with.

Small business – what defines them?

Numerical definitions are set by the SBA for all the non-profit small businesses operating in the U.S. The size standards are set on the basis of the count of employees working in the business and the average receipts on an annual basis.

But a singular definition is not applicable to fit all small businesses.

It can very widely depending on the industry that the small business is serving in.

The maximum range can vary from 250 employees at max to 1500 employees at max depending on the industry. That is quite a big range especially to a solo entrepreneur.

An average annual receipt of $750,000 to $38.5 million can also be used to define a small business.

Due to the lack of a singular definition for small business, let us check how it can vary from industry to industry.

Industry to industry – how the definition varies?

The SBA has worked to come up with a standard table that can comprehend the acceptable size of any small business for the various industries. Below mentioned is a size definition summary by larger industries.

Agriculture: Average receipt up to $750,000.

Mining: Depending on the mining subsector, a maximum of 250 to 1500 employees.

Utilities: 250 employees at max for subsectors of renewable electric power generation and 1000 employees at max for businesses operating in electric power and distribution of natural gas.

Construction: Average annual receipt of $36.5 million at max.

Manufacturing: Maximum employee count ranging from 500 to a maximum of 1500 employees.

Wholesale trade: 100 to 250 employees at maximum.

Retail trade: An average annual receipt of $7.5 million for a portion of the retail sub-industries and a range of 100 to 500 employees for the rest.

Warehousing and transportation: Average annual receipt of $7.5 million to $37.5 million for sub-industries, or 500 to 1500 employees for the general ones.

Information: 500 to 1500 employees or $7.5 million to $38.5 million depending on the industry.

Finance and insurance: For carriers of casualty insurance and direct property, a maximum limit of 1500 employees and annual receipt of $32.5 million to $ 38.5 million on average.

Real estate, rental and leasing: Average annual receipt of $7.5 million to $32.5 million.

Professional, technical and scientific services: Average annual receipt of $7.5 million to $20.5 million or employee cap of 1000 to 1500 employees at max.

Health care and social assistance: Average annual receipt of $7.5 million to $38.5 million.

You can check out the size standard table formulated by the SBA for other sectors if you want to check on the mark your business comes to for being defined as a small business. If you check out all the size standards, you will know how big the small businesses can be in the United States.

But if we take a look at the statistics, it is very surprising that 89.6% small business enterprises within the States have less than 20 employees with over 23 million enterprises having no employees at all. That means only the owner is running the business all by themselves.

Apart from numerical figures, SBA also considers other qualifications to state if a company can be considered as a small business or not. That includes:

  • The headquarters of the company – if in the U.S. or not.
  • Primary region of operation – if in the U.S. or not.
  • Profit or non-profit business.
  • Independency of owning and operating.
  • Contribution to the larger industry

SBA size definition – why does it matter?

The main reason for setting the cap for a small business is helping the small businesses with protection and promoting them for a larger economy of the nation. The definition that varies from industry to industry is required to aid the small business owners to compete against the giant share holders in the market operating in the same industry.

It helps the businesses to take advantage of loans from the SBA and win government contracts. It also works to provide them access to the other tools that they need in order to obtain rival the larger corporations in the industry. That means the small business owners can easily avail loans or strike government deals as they have access to the tools and resources they need to go up against the larger corporations.

But on the other hand, a business operating with 1500 employees would still be considered as a small business based on the industry and would avail the same benefits as that of a 10-person small business operating in the same industry, thus reducing the protections for the smallest businesses in the nation.

What is the size of your small business?

You might be running a small business but you must consider the annual average returns of your business before applying for funds and contracts from the government. If you get tipped over the edge due to the annual receipt, it can be problematic.

It is very easy to confirm your qualifications if you go through the comprehensive table of size standards set by the SBA and do some quick maths to determine the average annual receipt of your business. If you are applying for funds for your business, it is best that you know the size standards beforehand.

Note from the editor: All the opinions, reviews and recommendations are formulated by the analysis of the author. They have not been approved, reviewed or endorsed by any of the recognized entities.