The Definition of a Small Business – What it Really Is

What is a small business? Simply put, it is any type of company that has fewer than one hundred employees (usually excluding sales staff) and/or has sales that generate less than one billion dollars per year in the United States. A small business can be either privately held by a corporation or partnered, is an economic unit having a market size that is no bigger than several major companies, and has sales that generate less than one billion dollars a year.

The Small Business Administration defines a small business as any firm or corporation that has fewer than one hundred employees. In addition, the definition does not require a nationwide presence. So, a company that was established in the Pacific Northwest can be a small business even though it has sales in the eastern part of the state. And a New York City company could be classified as a small business, even though it sells products and services from across the country.

The next question that typically comes up when determining if a company is a small business is the definition of a small business with regards to size standards. The Small Business Administration offers two size standards for private firms. The first size standard is a firm or corporation that has annual receipts that do not exceed one hundred thousand dollars. The second size standard is a small business that has annual receipts that do exceed one hundred thousand dollars but whose assets do not exceed one hundred million dollars.

Now, one may wonder how the government contracts are measured. The answer is that the SBA define the size of a firm or corporation by looking at the gross sales of the company as well as its market value as determined by the United States Department of Commerce’s Bureau of Economic Analysis. This information is offered for free by the Bureaus. Once this information is collected, the Bureaus then use this standard to determine the size of any entity that holds Federal contracts. As a refresher, the definition of a small business’s definition is as follows: A private company that meets the criteria of the private Federal contracting agencies.

There is one important caveat to the definition of a small business. When a company meets size standards with the Bureau of Economic Analysis, the company must also meet the definition of a small business when it comes to the revenue level of its customers. Meaning, each customer does not need to have the same revenue in order to be considered a small business. If a customer’s revenue is more than the median revenue of all customers in the United States, then the customer is considered a small business for purposes of receiving federal contracts. For instance, an accountant firm with one thousand customers would not meet the size definition as a small business if it only had one thousand clients. Learn more information about fire extinguisher

The definition of a small business, while it is often a helpful benchmark for determining which companies meet the requirements needed to participate in the government’s contract program, is not without flaws. First, it only factors in revenue rather than profit or loss. This can create problems when a company is trying to determine how it will go about meeting the goals of a given federal program. The definition of a small business is helpful, but many businesses are not properly evaluated based on this standard. The aid of a consulting firm may be able to help small businesses properly set up their business plan and meet the definition of a small business in terms of revenue and success.


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