As a business owner, you might think that unless your company has just a few dozen employees, your business doesn’t qualify as a small business. You’d be mistaken – the definition of a small business is often closer to what you’d normally think is the definition of a big business. Learn all about what constitutes a small business below.
What is the definition of a small business?
Despite the ubiquity of the term “small business,” the U.S. Small Business Administration (SBA) definition of a small business is not the same for any two industries. The only trait that all small businesses share in common is that they are all privately-owned corporations, partnerships, or sole proprietorships.
The factors that define a small business
Regardless of industry, the SBA almost always uses one of two factors to determine a company’s size. These figures are often called SBA size standards. They are:
- Revenue. For small business definition purposes, the SBA expresses revenue as millions of dollars. For example, according to the SBA, a wheat farming business is a small business if its revenue does not exceed $0.75 in millions of dollars – or $750,000.
- Number of employees. The maximum number of employees that a small business may have is typically multiple of 250, though in some industries, it can be as low as 100. For example, a uranium-radium-vanadium ore mining company is a small business if it has no more than 250 employees, whereas a bituminous coal and lignite surface mining company qualifies if it has no more than 1,250 employees.
There are virtually no cases in which the SBA uses both revenue and number of employees to determine what a small business is for a given subsector. However, the SBA often uses revenue for one subsector of an industry while using number of employees for another subsector.
Across all industries, small businesses must meet the following criteria in addition to the numerical SBA size standards:
- Independently owned and operated
- Not nationally dominant in its industry
- Based in the U.S. or a U.S. territory, or if based outside the U.S., pays enough taxes or uses enough American labor, materials, or products to meaningfully contribute to the U.S. economy
Why does knowing your business size matter?
Among the reasons you should know your business size are:
- Extra protection and opportunities. The SBA says its mission is to “ignite change and spark action so small businesses can confidently start, grow, expand, or recover.” Through programs such as small business set-asides, the SBA puts its money where its mouth is – and if your company qualifies as a small business, you stand to benefit.
- Competition with market shareholders. Small business set-asides are also a great example of why knowing that your company is a small business can be advantageous. The SBA makes set-aside contracts solely available to small businesses to help these companies compete with larger businesses. If you determine that your business is small, plenty of SBA programs such as set-asides can help your company grow.
In some cases, your revenue may be disproportionately large compared to your number of employees. In other cases, you might have tons of employees but lower revenue. You can use your annual receipts to determine whether these outlying cases permit your company to qualify as a small business. If you’re cutting it close but you make it over the line, you might have opportunities not available to you otherwise – put another way, being a large small business can be better than being a small large business.
To determine whether your company is a small business, you can use the SBA’s size standards tool or refer to the agency’s extensive size standards table. You can also refer to some of the examples listed below.
10 SBA definitions of small business by industry
Here are some notable small business definitions taken from the SBA size standards table:
1. Management of companies and enterprises
The SBA uses revenue to define size for businesses that manage companies and enterprises. The maximum annual revenue to qualify as a small business in this industry is $20.5 million.
2. Educational services
The SBA uses revenue to define educational service business size. The maximum allowed annual revenue to qualify as a small business varies by sub-sector and ranges from $7.5 million to $38.5 million.
3. Arts, entertainment, and recreation
The SBA uses revenue to define arts, entertainment, and recreation business size. The maximum annual revenue for an arts business to qualify as a small business ranges from $7.5 million to $38.5 million.
4. Accommodation and food services
The SBA uses revenue to define accommodation and food services business size. The maximum annual revenue a company in this industry can make to qualify as a small business ranges from $7.5 million to $38.5 million.
5. Healthcare and social assistance
The SBA uses revenue to define healthcare and social assistance business size. The maximum annual revenue that a healthcare or social assistance company can make to qualify as a small business ranges, based on subsector, from $7.5 million to $38.5 million.
6. Administration and support services
The SBA uses revenue to define business size administration and support service companies. The range of maximum allowable revenue for small businesses in this industry varies by subsector and spans $7.5 million to $38.5 million.
7. Finance and insurance
The SBA almost always uses revenue to define finance and insurance company business size, but for direct property and casualty insurance carriers, it uses a cap of 1,500 employees instead. The maximum annual revenue ranges from $32.5 million to $38.5 million.
8. Professional, scientific, and technical services
The SBA uses the number of employees to define business size for some professional subsectors and revenue for other subsectors. The maximum number of employees ranges from 1,000 to 1,500, and the maximum annual revenue ranges from $7.5 million to $20.5 million.
9. Retail trade
The SBA uses the number of employees to define business size for some retail trade subsectors and revenue for other subsectors. The maximum number of employees ranges from 100 to 500, and the maximum annual revenue is $7.5 million.
10. Non-internet publishers
The SBA uses the number of employees to define business size for publishers of newspapers, books, greeting cards, and other non-internet informational items. The maximum number of employees ranges from 500 to 1,500 depending on the type of publisher, though for software publishers, a small business is any company with at most $38.5 million in revenue.
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