For many people, the term “small business” invokes images of a family-run local retailer with only a few employees. While operations like this are small businesses, so are a surprisingly wide variety of other companies.
Ask
a business owner, a bank, and the federal government to define small business,
and you’ll likely receive three wildly different answers. According to the U.S.
Small Business Administration, 99.9% of U.S. businesses are small businesses,
employing 47.5 % of the private workforce. The Small Business Association’s
(SBA) definition is complicated at best, and even changes from time to time.
While they may seem like easy terms to define, the limits for “small”, “medium”
and “large” businesses can vary depending on the industry and whom you are
asking.
What makes small business “small”? “Small” is primarily a subjective term. The definition for “small business” can change from agency to agency, even within separate branches of the same government. The U.S. Census Bureau labels small business as those having 500 or fewer employees. HealthCare.gov defines a small business as having between 1 and 50 employees. These inconsistencies mean that a business can be considered small to the U.S. Census Bureau, but not according to the health care law. Talk about an identity crisis.
SBA standards get even more confusing. While some business owners may be surprised to discover they do, in fact, own a small business according to the SBA, others will be shocked to find out they qualify as medium sized. Under the SBA’s criteria, the number of employees or the total gross income of a business will determine its official size. These numbers vary by industry.
For
example, a housing construction company can accrue $36 million in annual
receipts and still be considered a small business while a potato farmer is
capped at $750,000. Many of the industries held to an employee limit by the SBA
have a threshold of 500 or fewer for small business consideration. However,
businesses in some industries, such as manufacturing, can have up to 1,500
employees and still be considered small.
Business
owners can check the SBA’s Table of Small Business Size Standards to learn the
criteria for their industries. The SBA reviews these standards every five
years, and considers public input before updating their size limits.
Why does business size matter?
With so many definitions of “small business” out there, you may be wondering why it even matters that businesses classify themselves this way. As hinted at above, there are several benefits to wearing the “small business” label. These include better chances at winning government contracts, securing low-interest loans, and qualifying for certain tax breaks.
Small businesses get government contracts. The U.S. government aims to secure at least 23% of their contracts every year with small businesses across the nation. This standard helps smaller companies compete with giants for government contracts, while also boosting job creation and the overall economy. It’s a win-win for local small business owners and the country as a whole. Businesses seeking one of these government contracts must meet the SBA’s definition of small business before registering for the contractor database.
Small businesses get better loans. Small businesses are eligible for better SBA-backed loans than their larger counterparts. These loans typically have lower interest rates and more flexible repayment terms in order to help small businesses get off the ground. The loans come with strict guidelines governing what businesses are eligible. Since they are backed by the SBA, their guidelines determine which businesses are considered “small”.
Small businesses get more tax breaks
Small businesses also enjoy a slight advantage when it comes to taxes. On top of the normal deductions all businesses are afforded, there are a few extra bonuses only for small businesses. One of these is the Health Insurance Tax Credit. Businesses with fewer than 25 employees can claim this credit of up to 50% of costs paid toward employee premium costs. Check out this list for more tax deductions small businesses may be eligible to take.
Small businesses have their perks.
Small businesses also benefit from dedicated organizations devoted to helping them succeed. Groups like the National Federation of Independent Business and the Small Business and Entrepreneurship Council provide small businesses with advocacy, educational resources, research, legal help, and even discounts on certain products and services.
What other resources can small businesses use to help them succeed?
Plenty of resources are out there to help small businesses get started on the path to success. Key resources include funding sources, mentors or motivational tools, legal counsel, and software tools.
Small businesses need funding.
Without
funding, many small businesses wouldn’t even make it to opening day. Since
small businesses can access SBA loan options with lower interest rates than typical
business loans, many small business owners look for qualified banks to partner
with them in their funding venture. Not all banks can offer SBA loans, so it’s
worth the legwork to look for an institution that can offer great rates now,
and competitive offerings should you grow past “small” status.
Small businesses need a mentor.
Mentors can walk a small business owner through the process of starting a business, avoiding critical mistakes, and maximizing profits from the start. Sometimes small business owners will hire a business consultant in place of a mentor, or to supplement their mentor’s limited expertise. Regardless, a mentor can prove invaluable to a small business owner, even if they are there primarily for moral support.
Small businesses need legal counsel.
Whether
for deciding between S-Corp and LLC, reviewing contracts with vendors, or
procuring copyrights for intellectual property, every small business owner
should find a good business attorney sooner rather than later. Not only can
business attorneys help prevent mistakes that could lead to lawsuits, but
having a trusted advisor to turn to can ease the general anxiety associated
with navigating business law. Attorneys aren’t only good for handling lawsuits,
though. They can be a great resource for general business questions as well.
Tip: Small business owners can minimize attorney fees by drawing up paperwork
on their own, and having their attorney review it to ensure it meets legal and
industry standards.
Small businesses need small business
software.
Many
small businesses use small business software to help them with training
employees, customer service, marketing, sales, and more. Software can help save
on the cost of hiring full-time staff to manage each of these divisions. Good
software also saves the ever-busy small business owner time by putting critical
information at their fingertips and automating routine tasks.
Small business owners can also find software tools tailored to the unique needs of specific industries, including retail, government, and healthcare. While small businesses may only need a few software tools in the beginning, software with cloud technology leaves room for expansion as the company grows.
Customer
relationship management (CRM) software helps businesses respond quickly to customers,
support remote connectivity, and easily create accurate quotes for products or
services. CRM software can help increase efficiencies in the near term while
supporting future business growth, which is why small businesses can greatly
benefit from this type of investment.
Small business is what you make of it.
Small business is an easy term to say, but a dificult one to define. When looking for a loan or a goverment contract, small business ay be defined by various business regulations. While individual small business may pale in size when compared to their giant competitor, taken as whole, small business secure a large portion of the nation’s economy. Smalll busisness are afforded some perks to help to help them keep up with industry titans, including better interest rates on loans and special access to small business advocacy groups. These perks, coupled with a few critical resources, can really boost a smal business growth potential. No matter the size, all business are valued for the services they provide and th jobs they offer.
