What is a small business?

June 1, 2011
According to the Small Business Administration, small businesses are those that employ fewer than 500 people in most manufacturing and mining industries, or those that have $7 million in average annual receipts or less for most non-manufacturing industries.

Even then, some people may not consider a business with 450 employees “small.”

“We generally stick with the SBA definition of fewer than 500 employees – though if you pushed for greater exactness, I generally put less than 100 as small and 100-499 as mid-size,” said Raymond Keating, chief economist at the Small Business & Entrepreneurship Council, an Oakton, VA-based advocacy organization. “As you can see, plenty of wiggle room here.”

Indeed, exceptions to SBA’s general guidelines abound. Depending on the specific industry, identified through its North American Industry Classification System code, the size threshold for what SBA classifies as a small business may change.

For example, to be classified as a small business for contracting programs, an automobile manufacturing firm (NAICS 336111) has a threshold of 1,000 employees to be considered small, but an automobile merchant wholesaler (NAICS 423110) has a threshold of 100 employees.

With so much variance as to what constitutes a small business, is it then fair to talk about all small businesses that employ fewer than 500 workers as a single group in discussions on small business?

“I don’t think you’d lump them all together.” said John Mendeloff, director of the Pittsburgh-based RAND Center for Health and Safety in the Workplace. “I think it’s worth it to make a distinction.”

Tom Sullivan, an attorney with Nelson Mullins Riley & Scarborough LLP, said the legal definition – which the SBA defines – is important when talking what size of business can qualify for specific government subsidies, loans or contracts. But generally speaking, Sullivan said people tend to think of small businesses as those with fewer than 50 employees.