Definition of a Small Business

by Darren Hunter; Updated September 26, 2017
A small business can have one employee.

The definition of a small business can vary greatly depending on who's making the categorization. A small business can have from one to 500 employees and earn annual revenues of more than $10 million. According to its website, the U.S. Small Business Administration (SBA) considers a small business to be any business under 500 employees that is not dominant in its field on a national basis. However, commerce departments within many states generally use one to 100 employees as the determinant of a small business. Small businesses of all sizes are a critical part of the U.S. economy.

U.S. Treasury

The U.S. Treasury quantifies the definition of a small business, referring to designation guidelines as "size standards" that are located in Title 13 of the Code of Federal Regulations. Small businesses are further classified using varying size guidelines depending on the business category. Categories include agriculture, communications, manufacturing, retail, services and transportation.

Average Annual Receipts

To be defined as a small business in the computer and services category, a business must possess average annual receipts of under $21 million. This number is formulated by averaging the gross annual receipts for the last three years. Examples of this calculation and how the number varies depending on the business industry classification are found on the Treasury Department's website.

SBA White Paper

In its ongoing process of defining what size standards constitute a small business, the SBA has developed a “Size Standards Methodology White Paper." This white paper details how the SBA establishes, reviews and modifies its definition of a small business as it relates to the Small Business Act and other small business-related legislation.

Small Business Procurements

Because there are various state and federal procurements and tax benefits offered to small businesses, the Office of Government Contracting determines if individual businesses qualify as small businesses under the existing standards listed in the Code of Federal Regulations. As of 2010, the same size standards apply for all project award and financial assistance programs. The Office of Hearings and Appeals exists as an objective office of the SBA and serves as a legal appeal option to SBA decisions regarding company size.

Public Definition

In his article, "The Public's Definition of a Small Business," George Kozmetsky lists many different business experts from different sources and their definitions of small business. One widely held definition is one listed in the "Journal of Small Business Management" that states a business that is independently owned and operated and has either fewer than 100 employees or less than $1 million in gross receipts is a small business. Kozmetsky concludes the article by deferring to the definition provided by the SBA.

About the Author

Darren Hunter is an independent writer and entertainer. His articles are featured nationally, and he also is an infommercial host. He has been featured on C-Span, NPR, The Bulletin and The Big Talker to name a few. Hunter currently writes for Demand Studios. Hunter graduated from Philadelphia University.

Photo Credits

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