What is a Small Business? – It May Not Be What You Think

What is a Small Business? – It May Not Be What You Think

“What is a small business?” is a question entrepreneurs don’t usually ask, because as business owners we assume the answer is pretty obvious. We have all known for some time that any business under 500 employees is considered a small business–right? WRONG!

The “Small Business Administration” (SBA), makes the size standard determination for all NAICS business codes, and publishes their results in a 44-page document called the “Table of Small Business Size Standards.”

Here is a sample of the SBA’s various business size standards:

* A convenience store is considered a small business if it has $27.0 million, or less, in annual revenue.

* A software publisher…if it has $25.0 million, or less, in annual revenue.

* A producer of chickens for egg production…if it has $12.5 million, or less, in annual revenue.

* A producer of chickens for meat consumption…if it has $0.75 million, or less, in annual revenue.

* A telecommunications reseller is considered a small business if they have 1,500 employees, or less.

* A cigarette manufacturer…if it has 1,000 employees.

* A Mineral Wool manufacturer…750 employees.

* The Wholesale Trade (all products)…100 employees.

Well, as you can see, the answer for; “what is a small business?” varies all over the place…there is no simple answer. The reason for all the variations seems to be because of the SBA’s appeal process. Initially, any business seeking government procurement contracts can “self-certify” their business as being “small.” In other words, you simply say you are a small business.

However, anyone (usually a competitor) can challenge your designation if they think you do not fit the SBA size standards. The challenge goes through the SBA appeal process and they can either change the size standards (which has created the variations), issue an exemption on size, or label your business as “other than small.” The SBA publishes an 18 page document listing (in fine print) the names of businesses that have been challenged and subsequently labeled as “other than small” and therefore not eligible for small business government contracts, or loans.

So, why is this even of concern to most business owners? Here are four basic reasons:

1.) Size becomes very important if you ever attempt to do business with the federal government, because many of their procurement programs are directed only at businesses defined as small.

2.) If you ever plan on applying for any of the SBA’s loan programs, it is essential that your business is indeed considered “small.”

3.) Periodically, the government offers special programs, grants, loans, etc. to small businesses, but you must be designated “small” by the SBA in order to qualify.

4.) The many government regulations affecting business often have different rules depending on size standards. It should be important to you to monitor the laws and rules being created that affect your business, and participate in having your voice heard…protecting your “small” status.

Categories: Small Business

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