While we can all agree there is a big difference between a large corporation pulling in millions of dollars a year vs. a corner mom and pop business, there is a gray area separating what is considered a small business and what’s not. You may think it’s just size or number of employees, but it’s more than that. In a nutshell, small businesses are privately owned corporations, partnerships, or sole proprietorships, with government support and tax policies vary depending on the industry. How a small business is defined will depend on size guidelines for the different categories of business enterprises, such as:
- Agricultural production
- Transportation and warehousing
These categories all have their own subcategories as well, so you can see where it gets confusing. According to the U.S. Treasury, size is determined by the amount of average annual receipts or by the number of employees. For example, if you have a service-based business such as a landscape company or hair salon, there is a size standard involved that’s determined by averaging the gross annual receipts for the past three years, which must then fall under the designated amount set by the North American Industrial Classification System (NAICS) code in order to qualify as a small business in your particular category.
Again, that amount threshold varies by industry; someone operating a Computer Programming Service under NAICS code 541511 would have to present annual receipts over three years that come in below $21 million to qualify as a small business. This monetary amount is not true for other sectors, though. For instance, farmers in the agricultural field (animal production or crops) need to produce only $750,000 in average annual receipts).
On the other hand, for manufacturing NAICS codes, how many employees you have becomes the determining factor. Another example is a mining firm with less than 500 employees; this would be considered a small business. Bottom line is, the definitions aren’t the same across the board and what constitutes “small” is constantly changing. Check out these helpful size standards by industry sector chart by the Small Business Administration. In addition, expert advice is essential to determine whether your business is considered small or not in the eyes of the federal government. This status will determine anything from what you get in tax breaks to government support.
Some feel with no strict standard across the board, the statistics are misleading, to say the least. The SBA says that 99.7% of all businesses in the United States are small businesses, but one company could have 10 employees, another could have 500 and still, another could have up to 1,500, and all of them are considered small businesses. That said, there’s work being done to streamline the standards going forward but as of now, the definitions aren’t quite cut and dried.
You need a professional firm like Up and Social on your side — a fellow small business that understands the challenges set forth by your size and your industry. In fact, we specialize in small business digital marketing solutions custom tailored to your company.