But precisely what is a small business? It appears simple, but there are quite a few explanations going swimming out there actually, and a “small business” can range between a solo web entrepreneur completely up to multi-million-dollar business. How come it matter? Well, when you’re lumping such different kinds of companies into the same small business definition, it can result in a great deal of dilemma. You might read an article that you think is aimed at you, when in fact the author’s advice is created for much larger companies and won’t work for your business.
The definition can also affect things like federal government policies and loan programs for small business. So in this tutorial, I’ll try to bring some clearness to the question of small business size. First, I’ll cover some official definitions, from the U.S. Small Business Administration and others. Finally, I’ll explain at length why the definition matters, and the actual implications are for your business. And I’ll offer you some tips about effectively navigating those different explanations and ensuring you always get the right information for your business.
So if you’re ready, let’s dive right into those explanations! 1. What Is a Small Business? OK, let’s break the term “small business” down. The “business” part of the definition is fairly simple. Basically, if you’re providing goods or services to customers, you’re a business. You don’t have to be setup as a corporation, partnership, or any other kind of legal entity; exclusive proprietors are a kind of business as well.
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If you’re in business, you’re a business. The difficulty comes when we try to specify “small”. What qualifies as “small”? Just how does it be assessed by us? Usually, the size definition is based on either the real number of employees or the money you make, or both perhaps. Sometimes, it is also based on the size of the assets on the company’s balance sheet. Below are a few types of how that works. A company needs to meet all three standards to qualify.
But, as you can see, the levels are pretty high for what most of us would think of as “small”. In Australia, there are many different definitions utilized by different government agencies. 2 million. Fair Work Australia bases it on staff: a small business has fewer than 15 employees. These definitions are in Australian dollars, but they’re pretty high still, right?
In the U.S., things are a little more complicated. The U.S. Small Business Administration uses revenue and/or number of employees to specify a small business, but it can be applied different standards in various industries, so that it produces an enormous, 46-page desk of size standards for numerous kinds of firms. The definitions can vary a little quite. 38.5 million. And some explanations derive from a variety of employees only-often with limitations of 1 1, 000 employees, or even higher. Lots of research and consulting companies do surveys or other research on small businesses-or sometimes small and midsize businesses (SMBs).
Their explanations are fairly large too. You may be considering: “Hang on! Those aren’t small businesses. A thousand employees, and a huge amount of money of revenue? I concur. That was my reaction too. From the perspective of huge government companies or organizations, a few million dollars may “small” seem. But to the rest of us, these definitions don’t make much sense. If I ask you to think of a small business, I quite definitely doubt that you’ll think of multi-million-dollar companies. You’ll probably think of a small shop or office with a number of employees that you can depend on your fingertips and revenue that you can count up from what’s still left in the till at the end of your day.