What Defines A Small Business?
The answer varies based on the sector. But according to the SBA, a small firm has less than 1,500 workers. And a maximum annual revenue of $38.5 million.
The SBA established numerical "size standards" for each small business industry in the United States. So now its scale is determined by the number of workers and average annual earnings.
This sizing criteria is however not one size fits all. The meaning of a small firm is determined by the industry because there is no single definition of small business. Let us break it down by industry.
Definition Of Small Business By Industry
The SBA maintains a thorough table of guidelines that breaks down allowable small business levels by industry and even sub-industries.
However, the following is an overview of the size classification by bigger industries:
- Agriculture: Maximum average earnings of $750,000
- Mining: Depending on the subsector, a range of 250 to 1,500 persons may be employed
- Utilities: The maximum number of workers ranges from 250 (for subsectors of renewable electricity production) to 1,000 (for electric power and natural gas distribution businesses)
- Construction: Average earnings for construction can reach a maximum of $36.5 million
- Wholesale: The maximum number of workers in the wholesale trade ranges from 100 to 250
- Retail: The size criteria for one-third of all organized retail sub-industries is $7.5 million in average yearly receipts and other sectors have workforce maximums ranging from 100 to 500
- Transportation and Warehousing: Highest number of workers ranges between 500 to 1,500. Some shipping and storage sub-industries have average yearly revenue ranging from $7.5 million to $37.5 million
- Information: Based on the sub-industry, the permitted number of workers ranges from 500 to 1,500. This industry's maximum average yearly receipts range from $7.5 million to $38.5 million
- Insurance and Finance: A limit of 1,500 workers (for direct property and liability insurance carriers) and a maximum of $32.5 million to $38.5 million in average yearly receipts
- Real Estate, Rental and Leasing: A potential yearly revenue range of $7.5 million to $32.5 million
- Professional, Scientific and Technical Services: Estimated yearly earnings of $7.5 million to $20.5 million, or 1,000 to 1,500 people
- Social Assistance: Average yearly receipts for health care and social assistance range from $7.5 million to $38.5 million
There are numerous additional industries for which the SBA has particular size limits. So, check out their list of size standards to determine if your unique firm qualifies for small business.
You may conclude that all small firms in the United States are actually rather large after you look at SBA's various size guidelines
To put these size restrictions in perspective small firms with 20 or more employees account for 89.6% of all commercial operations in the United States.
Furthermore 23 million enterprises in the United States have no workers at all. Implying that the business is run solely by the operator.
Aside from hard figures the SBA considers the following criteria when determining whether a corporation may be classified as a small business:
- Whether or whether the corporation is based in the United States
- Whether it is most active in the United States
- Whether it's a for-profit enterprise or not
- Whether it is privately owned and operated
- Whether a firm is a minority in its broader industry
Why Does The SBA’s Size Definition Matter?
Why does the SBA impose a limit on small enterprises in the United States?
The SBA has established a standard definition of a small business in order to protect and promote small firms in the wider economy.
The definition of a small business (modified for each sector) is an important metric for assisting the little guys in competing with the big market share holders in their industry.
Its purpose is to assist small firms in obtaining government business loans (or SBA loans). Plus, winning state contracts and gaining access to general tools that will help them compete with larger organizations.
On the other hand, some organizations with 1,500 workers are nonetheless classified "small". And have the same safeguards in place as a 10-person small business in their industry. So, the size threshold may not always assist the nation's smallest enterprises.
What Size Is Your Small Business?
If you believe yourself to be a small company owner then chances are you actually operate a small firm.
If your average yearly earnings are likely to put you over the brink then determine your company's size before applying for government funds or contracts.
This might be as simple as looking at the SBA's table of size guidelines and adding up the number of employees in your company. Or you may need to conduct a quick calculation to calculate your yearly earnings.
In any case, it's essential to be informed before applying for business finance!