What is a Small Business?

Published by Thomas Herold in Accounting, Laws & Regulations, Trading

'Small Business' is explained in detail and with examples in the Trading edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Small Business refers to any company that has a maximum of 500 employees, per the definition set by the United States’ own SBA Small Business Administration. According to this definition of small business, the majority of companies within the United States are actually small businesses. SBA states that 99.7 percent of the around six million U.S.-based business with employees fall into this category. In point of fact, fully eighty percent of all American businesses employ less than ten people. Yet despite this, the larger corporations still employ a greater share of the American work force.

Yet U.S. Presidents often refer to statistics for small businesses that include those who employ only under 50 workers. This is why when someone (like a politician for example) mentions small businesses, one should understand to which definition of small they are referring. Yet qualifying for the various federal programs does not clarify the situation of what a small business is either. This is because the legal standard of this status will vary per each and every industry.

It always helps to consider some real life examples of a challenging concept in order to better grasp it. Consider the definitions set by the BLS Bureau of Labor Statistics. According to their industry by industry cutoffs, “cookie and cracker makers” have a maximum threshold for small businesses classification of as many as 750 employees. Yet in the “cereal manufacturing business” or for those firms engaged in “specialty canning” operations the limit is 1,000 workers. “Smaller oil refiners” are allowed to employ as many as 1,500 workers to qualify for the designation. Still other industries do not possess a hard and fast limit to the numbers of employees if their average company receipts in dollars are under a certain threshold limit. With “egg or chicken producers,” they are allowed to realize as much as $12.5 million yearly in receipts and still be considered as a small business under the all-important guidelines of the SBA.

Understanding whether or not they are a smaller business is similarly important because of Obama-care regulations and rules. Provisions for these companies in the health care laws will vary. Smaller businesses who employ under 25 employees with average annual wages of less than $50,000 will receive subsidies. Those employers who maintain staffs of less than 50 employees however are exempted from all of the penalties for not offering standard health care coverage to their workers.

Forbes magazine publishes a list called the “Small Giants.” In this ranking, they reveal the best of the not so big companies every year. These top ten recipients of this ranking for the year 2017 were as follows: Barefoot Books with 20 employees, Basecamp with 52 employees, Dansko with 150 employees, Dutch Brothers Coffee with 170 employees, Essential Ingredients with 66 employees, Fresh Books with 248 employees, Fusion OEM with 55 employees, Galileo Learning with 80 employees, GYK Antler with 85 employees, and H.B. McClure with 500 employees.

The criteria to be considered a small business by Forbes are obviously quite different from the various departments of the government, though it does seem to agree with the Small Business Administration limit of 500 employees or less. Forbes says about these respected companies that they opted to be great firms instead of big ones.

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The term 'Small Business' is included in the Trading edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.