What Is a Small Business?

by Heather Burdo - Updated May 05, 2018
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Usually, a small business will have approximately 500 employees or less for most mining and manufacturing industries, and for most nonmanufacturing industries, small businesses will have about $7.5 million in average yearly receipts. Exceptions exist for various industries, which is why the Small Business Administration follows a size-standard table. Aside from size standards, a business will also need to be organized for profit, be located and operate in the United States, not be dominant in the business field on a national basis and be independently operated and owned.

What Is a Small Business?

There are disagreements when it comes to the true definition of a small business. The SBA claims that a company is considered a small business when it has less than 500 employees. Different industries have varying size standards that the SBA goes by to determine if a business is considered small. For example, according to a 2016 size table report from the SBA, retail bakeries have approximately 500 employees, commercial bakeries have 1,000 employees, chemical manufacturing companies range from 500 to 1,500 employees, and apparel manufacturing has between 500 and 750 employees. Size standards change periodically, so it's ideal to check the table on the SBA website for updated information.

How to Start a Small Business

Starting a small business may seem like a big step – and it is – but pushing yourself forward can be rewarding. The first thing you need to do to start your small business is to get an employer identification number, or EIN. This number is used as a federal tax number to identify the business. Those who need an EIN are business owners who plan to have employees, a partnership, a corporation or a limited liability company. Additionally, you can use an EIN in place of your Social Security number. You can obtain one in moments on the IRS website.

Once you have your EIN, register your trade name if it's anything other than your legal name, by going to your state or county clerk's office. After that, you will need to obtain a business license. Every business needs a form of license or permit so the government can track revenue for tax purposes. If your business involves a skill or expertise, such as a veterinarian, doctor, dentist or other expert who provides services, you will need a professional license. Businesses that sell alcohol or are involved with agriculture or aviation are considered a federally regulated industry and will need permits and a specific federal license. Businesses and permit laws vary from state to state, so research your state's guidelines.

Once you have the EIN and business license, you can start thinking of what bank you want to use for your business account. Without a business account, your accounting and taxes would be a mess because you would somehow have to remember what was personal and what was business. All you need is your business name and EIN when applying for a business banking account. However, every bank is different, so check with the bank to be sure you don't need other documentation.

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How Small Businesses Become Large Corporations

A small business has the potential to grow into a large business. Most entrepreneurs have the goal of growing their small business into a larger business. The first step is to reinvest in the business. Several business owners pull money out of their profit to pay themselves, but to truly grow you should be reinvesting a large portion back into the business.

Another step to growth is having a team. While some people fear handing off their work to someone else, it may be the only way to experience growth. It's impossible to get everything done on your own in the time frame you want. Interview prospective employees thoroughly and make sure they are 100 percent a good fit for your business before hiring them.

If you have just one product or one service, your business growth is going to be limited, so add a product line or a few other services to diversify your business. New revenue streams mean more opportunity and a ton of room for growth.

About the Author

Heather is a freelance writer from New York. She loves forming words to make rockstar content. While away from writing, she loves anything to do with personal development, being outside, and spending quality time with family.

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