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.
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.
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:
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:
Among the reasons you should know your business size are:
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.
Here are some notable small business definitions taken from the SBA size standards table:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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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