Defining Small Business

What is a small business? Learn about how a small business is identified in the industry.

Nowadays, people are continuously searching for ways to earn money to help them improve their financial situation. Especially for those with financial problems, other sources of income are very welcome and are explored. Many people, not only those who are financially challenged, are also looking for new jobs or new income generating activities to help them with their expenses. Others, on the other hand, just plainly want new and exciting things to do to earn.

Most who are tired of their 9-5 jobs are often eager to explore different ways of earning a living. One of the best ways to earn today is through small businesses. Having a small business will help you become more flexible since you command your time and you will be your own boss. One more advantage about small businesses is that through it, you can pursue the things you are interested in. At a very low cost, you may be able to start your own small business while working a day job to keep a steady income coming.

Small businesses are basically efforts or services that are rendered and organized for profit. Small businesses make a significant contribution to the economy of its country. This may be done in several ways such as through the patronage of the country’s products and materials, employment of the country’s labor force, and its payment of taxes. Small businesses are also generally independently owned and operated.

Small Businesses as Identified in the Industry

Now, when do we consider a business a small business? When can we say that a business no longer falls under the category of “small business”? Well, one major factor for calling a business a small business is its size. The U.S. SBA or the U.S. Small Business Administration has set and established “size standards” which are numerical definitions for small businesses for every private sector industry in the economy of the United States. On the other hand, the NAICS or the North American Industry Classification System is in charge of identifying these industries. Usually stated in the number of employees or the average annual receipts, size standards represent the maximum size of a business classified as a small business. Consequently, exceeding this limit will mean that the business will no longer be classified as a small business.

The most commonly used size standards for businesses can be seen below.

NAICS Industry Sector

Size Standard

  Manufacturing   500 employees
  Wholesale Trade   100 employees
  Agriculture   $750,000
  Retail Trade   $7 million
  General & Heavy
Construction (except
Dredging)
  $33.5 million
  Dredging   $20 million
  Special Trade Contractors   $14 million
  Travel Agencies   $3.5 million
(commissions & other
income)
  Business and Personal
Services Except:
  $7 million
  Architectural, Engineering,
Surveying, and Mapping
Services
  $4.5 million
  Dry Cleaning and Carpet
Cleaning Services
  $4.5 million

*Table from http://www.sbaonline.sba.gov/contractingopportunities/owners/basics/whatismallbusiness/index.html

As you may observe, size standards vary from industries.  Some industries have high standards compared to others. All Federal agencies are required to use SBA size standards for legal matters which include contracts for small businesses.