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JLeslie's avatar

How is "small business" really defined?

Asked by JLeslie (60511points) January 21st, 2010

We hear the term thrown around all of the time in the media by politicians and others. When I think small business, I am thinking small corner store, or local business in the community. But, a friend of mine told me that the definition is actually for much bigger business than I think. The problem is she could not give me specifics. How many employees? How much revenue? How much profit?

What is the technical definition of small business when we talk about it referring to jobs and our economy?

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11 Answers

Cruiser's avatar

The legal definition of “small” varies historically, by country and by industry, but generally has fewer than 100 employees in the United States and under 50 employees in the European Union.

Check out the Small Business Association for answers to all your questions on small businesses.

BoBo1946's avatar

lemonade stand…loll

go with Cruiser!

marinelife's avatar

From the SBA:

“To qualify as a small business concern for most SBA programs, small business size standards define the maximum size that a firm, including all of its affiliates, may be. A size standard is usually stated in number of employees or average annual receipts. SBA has established two widely used size standards—500 employees for most manufacturing and mining industries, and $7 million in average annual receipts for most nonmanufacturing industries. While there are many exceptions, these are the primary size standards by industry. (For more complete information on size standards, see SBA’s Small Business Size Regulations (13 CFR §121) or the Table of Small Business Size Standards.


* General building and heavy construction contractors: $33.5 million
* Special trade construction contractors: $14 million
* Land subdivision: $7 million
* Dredging: $20 million


* About 75 percent of the manufacturing industries: 500 employees
* A small number of industries: 1,500 employees
* The balance: either 750 or 1,000 employees


* All mining industries, except mining services: 500 employees

Retail Trade

* Most retail trade industries: $7 million
* A few (such as grocery stores, department stores, motor vehicle dealers and electrical appliance dealers), have higher size standards, but none above $35.5 million.


* Most common: $7 million
* Computer programming, data processing and systems design: $25 million
* Engineering and architectural services and a few other industries have different size standards.
* The highest annual-receipts size standard in any service industry: $35.5 million
* Research and development and environmental remediation services: the only service industries with size standards stated in number of employees

Wholesale Trade

* For small business Federal contracts: 100 employees, and the firm must deliver the product of a small domestic manufacturer, as set forth in SBA’s nonmanufacturer rule, unless waived by the SBA for a particular class of product. For procurements made under the Simplified Acquisition Procedures of the FAR and where the purchase does not exceed $25,000, the nonmanufacturer may deliver the goods of any domestic manufacturer.
* For loans and all other programs: 100 employees is applicable for all industries.

Other Industries

* Divisions include agriculture; transportation, communications, electric, gas, and sanitary services; and finance, insurance and real estate.
* Because of wide variation in the structure of industries in these divisions, there is no common pattern of size standards.”

JLeslie's avatar

Interesting. I think many people have no idea a manufacturing company can have up to 500 employees, sometimes 1500 and be considered a small business, let alone the revenues @Marina listed.

I really think all of the conversation about taxes and small business, most people are thinking about their local plumber who employs 10 people.

Thanks everyone.

BoBo1946's avatar

A new small business was opening and one of the owner’’s friends wanted to send flowers for the occasion. They arrived at the new business site and the owner read the card; it said “Rest in Peace”. The owner was angry and called the florist to complain. After he had told the florist of the obvious mistake and how angry he was, the florist said. “Sir, I”m really sorry for the mistake, but rather than getting angry you should imagine this: somewhere there is a funeral taking place today, and they have flowers with a note saying, “Congratulations on your new location!”

noyesa's avatar

@BoBo1946 Interesting anecdote about a lemonade stand in Chicago: I heard a story that some neighbors complained about a couple of kids setting up a lemonade stand, so the police went there and told them they had to leave because they weren’t a registered business and didn’t have a permit for commercial activity in the public space.

What police can do when they put their minds to it, and what other things they must have been ignoring to do this!

BoBo1946's avatar

@noyesa wow….glad i live in small town USA!

Cruiser's avatar

@noyesa I am from the Chicago area and remember that story. Unfortunately, the police are obligated to do that when a complaint is registered.

Snarp's avatar

A McDonald’s franchise is often counted as a small business, and I suppose to the franchise owner, it is. But while the franchise owner takes a lot of risk on himself, McDonald’s also provides a lot of corporate support in terms of product, training, and advertising that the franchise owner could never afford if he were starting from scratch. And every franchise is part of McDonald’s corporate revenue stream. So, is a McDonald’s franchise a small business? The Bush administration thought so. I would be surprised if the Obama administration treated franchises any differently than Bush did when talking about supporting small business.

JLeslie's avatar

@Snarp I am sure the administrations think of the businesses similarly. The real trick is how does the American public perceive them. They are voting and aligning with parties based on their assumptions, probably not the facts.

Snarp's avatar

@JLeslie Absolutely. Any president who wants to tout support for small business (which is any president) will say, under my administration x number of new small businesses opened creating y number of jobs. Aren’t we great. And they’re going to count a McDonald’s franchise in that number because they can, and because no one is going to drill down into that number enough to say, hey McDonald’s is the face of corporate America pushing out independent locally owned small business, they shouldn’t count.

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