- Small businesses represent around 99% of all US businesses, and employ about half the workforce, according to the US Small Business Administration.
- Government and private institutions often use their own models, which may exclude some businesses for different reasons.
- Knowing where your company fits can help identify which of the many small business resources and opportunities it is eligible for.
- Companies also change — Apple and Google famously started in garages — and specialized services can help big ideas become real business.
- Visit BI Prime for more stories.
Ask a friend or neighbor how they define "small business" (or SB), and they will likely give overlapping answers, with a lot of individual variation around the edges. Small businesses come in many shapes and sizes, so it can sometimes be hard to know where yours fits in the picture.
It's basically the same way with institutions. Governments tend to be more specific than private companies, just like the policy and business worlds use different precision in their language. Lobbyists and interest groups tend to take the broadest view, since that makes for better numbers.
If you ask the US Small Business Administration (or SBA), they'll refer you to a reference table or their handy quiz to see if you're eligible for one of the federal government's many small business contracts.
In addition to being the most complex, the Fed's definition is the most important one to get right as it pertains to your business. Not only does it define which firms are eligible for small business-designated US government contracts, it also extends those constraints to other institutions (like CDFI's) that use federal funding to partner with small businesses.
Adding to the complexity is the fact that the statute is subject to periodic review and revision. One such revision occurred last summer, when the nominal revenue limits were adjusted for inflation for the first time since 2014. That meant that more than 90,000 businesses that had been too big in July were suddenly "small" in August.
The simpler and more conventional definition of small business comes from the Gartner IT consultancy. Gartner says firms are "small" when they have fewer than 100 workers or less than $50 million in revenue.
Here are the common elements of a small business definition for you to keep in mind when exploring potential government contracts, financial supports, and business partnerships.
How many people do you have?
Are you self-employed? If so, congratulations, you're a small business. The US Census does distinguish between businesses with employees and without, so you would be counted as an owner, but not an "employee."
For firms with employees, 100 is the upper limit defined by Gartner, the City of New York, and several others. NYC even has a "very small" category for less than 20 workers.
Gartner calls firms with between 100 and 500 workers medium-sized, hence the shorthand Small and Midsized Businesses (SMB) for companies with fewer than 500 workers.
On the other end of the scale, the US government allows companies in certain industries to have up to 1,500 workers and still classify as small.
Meanwhile, financial institutions tell Business Insider they are more concerned with the complexity of your banking needs than the staff on your payroll.
With respect to the self-employed, the rise of the gig economy, side hustles, and so forth, more people are now independent contractors, which means they are a business.
Even if you don't think driving for Lyft or designing websites on the weekends makes you a business, Lyft — and more importantly, the Internal Revenue Service — think you most definitely are.
How much money do you make?
Again, per Gartner, the upper bound for annual revenue or sales is $50 million for small firms and up to $1 billion for midsize ones.
The US government takes a more conservative position, and is more tailored to the specific business. At the top of the range, industries with high financial and physical capital requirements can receive up to $41.5 million in annual revenues, whereas most agriculture businesses are capped at $1 million.
Those numbers reflect a recent inflation adjustment that the Small Business Administration says extended access to 90,000 companies who had gradually lost eligibility due to rising prices across the economy. They were small, and then they weren't, and now they are again — politics.
The banks Business Insider has spoken with are more interested in the complexity of your transactions. A lot of cash moving around the US is easier than less money converting through other products and currencies.
The small business division will happily help you with as much of the former as you can bring in, but may ask you to visit the commercial side if you start bringing in the latter.
If you don't have the revenue or credit profile to get lending from a bank, they will likely send you to a Community Development Financial Institution. CDFIs and Community Development Corporations partner with traditional banks to provide capital to businesses who otherwise might not have access.
There are a million and one reasons why someone might be denied at the bank. If all goes well, the CDFI's client "graduates" to a conventional private bank and the CDFI counts it as a success.
What is your industry and market?
Different industries involve extremely different levels of human and capital resources, and a dollar goes a lot further in Manhattan, Kansas, than it does in Manhattan, New York.
Financial institutions especially care about this, since it bears directly on how they will rate the risk of your business plan. Another way to look at it: how big of a fish you are really depends on where you're swimming.
And while the SBA has district and regional offices around the country, small business owners' first call should be their Town or City Hall. BI can't tell where that is for you, but the SBA is a reasonable place to start.
What are your goals for those three things?
If you've made it to this question, you're probably a small business. The next question is, do you plan to stay that way? And if your answer is no, then how are you planning to grow and scale?
Sometimes it can seem like every entrepreneur wants to be the next Facebook or Google, but that's far from what gets most people into business for themselves.
If you're trying to grow your business and hire a team, you'll be using a lot of cash. And cash has to come from somewhere.
Option A: the really really hard way — using your own funds and anything you can pull together from your social networks.
Option B: the really hard way — if your idea has the potential for explosive growth and a massive long-term scale, venture capitalists may be willing to give you their money in exchange for an ownership stake in your business.
Option C: the hard way — if you are looking at lower year-over-year growth, or a smaller long-term scale, you may be eligible for a loan from a consumer bank or CDFI.
There is no easy way.
For most business owners, option C has the most reasonable levels of management control, financial liquidity, and riskiness.
So, how does BI define small business?
In a sense, Business Insider has covered small businesses from the very beginning, when we were called Silicon Alley Insider. The main difference being that most of the SB's we covered were tech startups in a race to secure venture funding.
BI is still a pioneering source for journalism about Silicon Valley and Wall Street, and the introduction of a dedicated Small Business desk marks a widening of our focus to include more Main Streets.
Here's our working definition of Small Business in bullet form, of course:
- Up to 500 employees (Insider, Inc. has around 600… wait, are we small?).
- No limits on revenue (surprise us).
- North American markets (most relevant to the majority of our readers).
- Privately owned and operated (we're interested personal stories).
- Bootstrapped or debt-financed (we already have a team covering ventures and equities).
This definition is what guides our coverage of small business, but in our newsroom the boundaries between beats are even more blurry than the competing definitions of small business.
What we care about here is finding good stories and useful information for our readers, so whether you're a team of 1 or 501, we're here for you.
If you or someone you know runs a small business with a story to share, please email Dominick at dreuter@businessinsider.com
Join the conversation about this story »
Visit dearJulius.com to get free premium content for all of your lifestyle needs.
COMMENTS