Define Small Business?

The US Small Business Administration (SBA) defines a small business as a business with less than five hundred employees. That is the basic definition but there are a number of exceptions that would even include companies with as many as fifteen hundred employees. There are also revenue maximums. You need an attorney navigate that mine field.

Few people would define a company with hundreds of employees as a Small Business. The needs and challenges faced by a company with four hundred and ninety-nine employees are also far different from the those faced by businesses with just a few employees. The purpose of this article is to develop a definition of Small Business to use in creating tools and resources for the types of companies that most people would understand to be Small Businesses. The definition we develop is not a legal one nor is it absolute.

For our purposes a small business is;

1. A business owned by an individual or small closely held group, usually no more than three.

2. The owner is often perceived by the customers as the company. The customers are buying from Joe not Ace Carpet company.

3. The ownership is entrepreneurial. By entrepreneurial I mean the ownership accepts the risk and rewards of the business.

4. The business is nearly always managed by the entrepreneurial ownership. If there are owners not involved in the operations of the company they are usually relatives of the entrepreneurial ownership or providing a source of working capital for the business in exchange for a significant portion of anticipated profits. these owners are often invisible to customers and even sometimes staff.

5. The business is dependent of the skills and enthusiasm of the owner. Without the owner there is no business.

6. The owners skills relate to the product or service of the company rather than to the running or managing of a business: a carpenter starts a carpentry firm; a dentist, engineer or lawyer start a practice in dentistry, engineering or legal work.

7. Sales can be a particular challenge for small businesses because the skill of the ownership is often focused on the product or service rather than marketing or selling the product.

8. Financing is secured through tangible assets such as inventory, real estate or even the personal assets of the owner not through bonds or based on the value of the company.

9. Most employee report to the owner and even if the employee reports to another employee they perceive the owner as their boss not the employee to whom they report.

10. Business decisions are made quickly by one or a few individuals. The company can respond quickly to new opportunities.

11. While I tend to think of a small business as one with less than 15 employee because it gets under some of the reporting requirement of federal programs our home building business had at its maximum seven employees but on any given day we had many times that many trades people working for us as trade contractors.

The definition of a Small Business in this article is more a profile than a definition. Most people will recognize a small business even if they cannot define it legally.



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