What is a Small Business?
Small businesses make up 99.7% of all companies in the U.S., according to the U.S. Census Bureau. That means that of the 5.73 million businesses in the U.S. as of 2012, 5.71 million were considered small. Companies with fewer than 20 employees comprised 89.6% of all business enterprises and on top of those companies, as of 2013, there were 23 million businesses with no employees at all, meaning the only worker is the owner.
However, there is disagreement about what, exactly, a small business is. The Small Business Administration (SBA) generally considers a company with fewer than 500 employees to be a small business. Yet to solo practitioners, 500 employees seems huge.
And different industries have different size standards that the SBA uses to qualify or disqualify a business as “small,” so a company could have as many as 1,500 employees and still be labeled small.
Who are Small Business Owners?
According to the Census, men own 51.3% of all small businesses, women own 28.7%, 3% are publicly owned, and the remaining 17% were equally owned by men and women partnerships. Women are more likely to own service-based businesses, where men own more product or technology-based ventures.
What is a Small Business?
Besides the number of employees, the SBA has other factors that help determine if a company is a small business:
- Is the company headquartered in the U.S.?
- Does it operate primarily in the U.S.?
- Is it a for-profit venture?
- Is it independently owned and operated (versus being owned by a parent corporation)?
- Is it a minority player in its industry (versus holding a major market share)?
Why Does it Matter?
Officially qualifying as a small business can help a company compete for government contracts, if it so desires. There are government contracting opportunities that are set aside specifically for small businesses – meaning only a small business can win it.
More importantly, in general terms, a small business has much different operational issues than a major corporation. Small businesses often have more difficulty borrowing money, may focus on serving a local or regional geographic area, and frequently have far less bureaucracy (and that’s a good thing) than their larger brethren.
On the plus side, small businesses are frequently known for their adaptability and flexibility (it’s much easier to turn a small boat than a huge destroyer quickly), their customer service focus (probably since each customer is important to their success), and their creativity and innovation (which is why larger companies often acquire small businesses).