While the word small business often conjures up images of a mom-and-pop establishment like a neighborhood diner or restaurant, independent retail operation or start-up manufacturing company, these enterprises can be found in all shapes and sizes. Regardless of their organizational structure — sole proprietorship, partnership, corporation or limited liability company — many small businesses are nimble and drive economic growth in local communities.
The federal government defines what constitutes a small business by comparing a company to its peers in its industry and using specific size standards. It’s important to know these definitions because many small businesses receive funding from the government, specifically in the form of loans and grants. These funds come with benefits that larger businesses can’t compete with, such as flexible terms and fewer hoops to jump through.
To determine whether a business is considered small, the government looks at a number of factors, including the average annual revenue of a business and the number of employees. Some industries have a maximum limit for how large a company can be and still qualify as small, such as the mining and traditional power sectors which cap their size at 500 employees.
In other industries, the minimum threshold varies from industry to industry. For example, the software and information technology sector has a lower minimum than other industries because their companies are generally less labor intensive. Other criteria include whether a business is family-owned, female-owned, veteran-owned, or minority-owned. This data, along with the Census Bureau’s County Business Patterns survey and other economic statistics, can help chambers of commerce and other business groups tailor their resources to the needs of small business owners in their community.