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What Is a Small Business Defined As?

Over the past few years, there has been an increasing push--largely on social media--for consumers to choose small businesses over large companies. Tags such as #SupportSmallBusiness and #ShopSmall can be found on hundreds of thousands of posts across social networking platforms. This means that a growing niche of consumers specifically seek out these businesses. Here are three things to consider when determining where your brand or company fits into the "small business" category:

What is small business defined as?

1) Revenue Range

Before diving into specifics, let's get some important definitions out of the way. While growing your company, you've likely encountered your fair share of entirely new and confusing jargon. The terms "revenue" and "income," for instance, are often confused or used interchangeably. It's critical (and easy!) to learn the difference. Revenue is the total amount of money generated by a company--literally any capital that a business receives. Revenue can be calculated by multiplying the number of items or services sold by the market price(s). Meanwhile, income refers to a company's profits once expenses are subtracted from revenue--the great and powerful "bottom line." Of the two figures, the Small Business Administration (SBA) only considers revenue in its definition of "small business." Depending on the industry, a small business generates no more than $1 million to $40 million in yearly revenue.

2) Amount of Employees

In 2022, the number of people employed by small businesses in the US reached 61.7 million--approximately 46.4% of the nation's workforce. This statistic is an 82% increase from 2021's 61.2 million. When determining if a company or brand qualifies as a small business, the SBA considers its individual amount of employees. If you're wondering if "none" qualifies as an amount, the answer is yes! In fact, 80% of small businesses in the country do not have employees. Only 16% have 1-19. To qualify for the SBA's classification, a small business can have no more than 100-1500 employees, as specified by industry criteria.

3) Different Industries Have Different Criteria

To determine which criteria applies to your business, you need to assign your items/services to a North American Industry Classification System (NAICS) code. The NAICS was developed with the goal to provide uniformity and comparability in economic data. So... what does that mean? It's essentially a formula that converts both products and services into a common datapoint--the "unit." By creating this measurement, economists are able to compare company figures directly. As you would expect, the formula is used to classify businesses based on industry. Types of codes include agriculture, mining, utilities, construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, finance and insurance, real estate and rental/leasing, educational services, health care, arts and entertainment, and more. The complete NAICS code list and guidebook can be found on the U.S. Census Bureau website.

Still unsure if your business qualifies? An approximate calculator for business size can be found on the SBA website.


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