Understanding Small Business Definition and how it differs from an enterprise

Understanding Small Business Definition

Small Business definition Small businesses are everywhere. They are found in every street or corner. When someone mentions a Small business, the first thing that comes to our mind is a local store, a small crockery shop, a family-run restaurant, a pet store, etc. If I ask about the definition of small business, many people will define the term from their perspective. However, the small business definition is wide enough than many people realize. Many people try to define Small businesses according to their own opinion. The small business definition may vary from individual to individual. However, in this article, I would let you through researched perspectives about the definitions of small businesses. The small business definition has consistently changed for the past 5 decades. Businesses with fewer than 500 employees are considered small by some folks. While others have a different opinion regarding the small businesses definition. Additionally, the Small Business Administration (SBA) is an authority to define what businesses are considered small and what not. A study was conducted to explore the definition of small businesses and microenterprises. This study was conducted by surveying 388 MBAs and CPAs in The United States of America. The goal of this study was to better understand the definitions of small businesses and microenterprises. Though the better understanding of small business and microenterprise remained a mystery a broader understanding of the difficulties in defining these two terms was brought to the forefront. So, let’s define what a small business is and what it needs to get success

Small business definition

When you ask people from different social backgrounds you will see that most of the people will think of a business with few employees. With this saying, locally-owned businesses are also considered by many as small businesses. However, if you ask a business owner, a bank, and a government agency, all of them will have a different definition of small business. The small business definition varies depending on which organization, group, or government agency you ask. All of them have a different opinions about the small business definition. Small business definition is different for different branches of government. The US Census Bureau, for instance, defines a small business as those with 500 or fewer employees. On the other hand, according to Healthcare.gov, a small business is one that has one to 50 employees. This is how government agencies think about small business definition. Resultantly, we can say that a business that is considered small by the US Census Bureau might not be a small business for Healthcare.gov. If the small business definition is different even within the branches of government then how should we define a small business? And how would you know whether your business falls into the category of small business? Obviously, there must be a criterion for small business definition.

Small Business Definition: What is a small business?

The term small is so subjective that we cannot have any definitive or all-encompassing definition of a small business. It varies, as we discussed earlier, according to different agencies. The US government considers both the average income and average employees to determine the size of businesses. When defining the small business, the US Department of State defines it by the US Small Business Administration’s (SBA) definition. Whereas that definition also varies according to industry, revenue, and the number of employees of a particular business.  

The Small Business Administration’s (SBA) definition of small business

According to the estimates of the Small Business Administration (SBA), 30 million small businesses exist in the United States. These small businesses employ 47.1% of the private workforce. The SBA’s small business definition may seem complicated as it changes with the passing time. Hence, limits for small, medium, and large businesses may vary depending on the industry. Generally, with regards to small business definition, SBA defines it as:
  1. A business that is independently owned.
  2. A business that is designed to earn a profit.
  3. A business with a location in the United States
  4. A business that contributes to the US economy, pays taxes, uses American products, materials, or workers.
Let’s take a Soybean farm versus a logging company as an example for a small business-standard. North American Industry Classification System Codes considers a soybean farm with less than 1 million dollars in annual receipts a small business regardless of how many employees work for that company. Contrarily, a logging company is considered a small business only if it has less than 500 employees. It does not matter how much it earns per year. If you go deeper, it gets even more complex. A forest fire suppression company is considered to be a small company with up to $20 million annually.  Whereas an automotive merchant is said to be a small business only if it has fewer than 250 employees. There is a bit different when you compare a small business with an enterprise.

How a small business differs from an enterprise?

Corporation vs Small Business As there is no exact small business definition, the same is the case with an enterprise. An enterprise may also vary in size. Small businesses and enterprises differ in size and structure. Small businesses differ from an enterprise in the following ways.
  • Growth goals:

An enterprise often aims to take over the market. However, small businesses often stay still and grow in a manageable way.
  • Ownership

An enterprise is owned by multiple owners whereas small businesses are privately held businesses with one or more partners.
  • The number of employees

An enterprise may consist of more than 1000 employees. A small business has fewer than 1000 employees.
  • Corporate structure

A small business is a Limited Liability Company or a sole proprietor and an enterprise is said to be a corporation. However, small businesses may register themselves as a corporation. Just like small businesses, an enterprise can also be a small enterprise or a large enterprise depending upon their income and the number of employees.

What small businesses need to succeed?

No matter which business category or industry a small business falls into, it has certain requirements to succeed. Good business ideas and a desire to grow may not be enough for a business to succeed in the market especially when the success rates of the business are compiled by the Bureau of Labor and Statistics. For the success of the small business, four pillars are defined here:
  • A growth plan
  • Right technology solutions
  • Funding

Growth plan for small business success

The main focus of most small companies lies in their everyday operations. It is a natural thing and it seems to be an important thing to attend the day to day operations. However, small business owners need to focus on the company’s next 5 to 10 years. They must see what they want their company to look like in the next decade. If the next  5 to 10-year plan increases the company’s size, customer margin, and profit then why should be left behind in this criteria? There is no denying the fact that outlining the long-term plans and consistently following the plan for long-term success is critical. However, while looking at the4 business needs, the business owners should outline the long-term plan and diversify the income streams, make a partnership with other businesses, researching in the market, and investing to improve the chances of success.

Right technology solution for small businesses

In this modern world of technology, if you are not using technology in the right way then you might be at a great loss. Small-scale businesses must utilize the right technology from the start to grow their business. Small business software, for example, can help you a lot in employee training, customer base, and in many other ways. Softwares can save a lot of your time and effort in the management of your business. Even this software help a business owner get the information of the customers at the fingertips.

Legal guidance for small businesses

Any business whether large, medium, or small scale business need legal advice to help them navigate the business world. The business attorneys help prevent mistakes that might lead you to costly fines. They also help you to ease the anxiety associated with business law. Apart from them, they help you in many other ways including general business questions, taxes and about reviewing contracts, etc.

Funding for small business

A small business needs initial funding. This can be an initial investment from the family, friends, or loan from a bank or it may also be a personal saving. SBA is an amazing platform that offers to fund with interest rates lower than many banks. Hence, one should look for any financial institution which partners with SBA.

How small businesses are the backbone of the economy?

Small Business BAckbone As Small Business Administration estimates, there are almost 30 million small businesses that exist in the United States. Small businesses employ over 50 million employees in the country.  Small businesses are important not only for the employees who work for these businesses but also for the economic development of the USA. Small businesses are offered many perks to help them grow in the industry. They are also offered less percent of interest rates. The small business can have an abundance of growth with the right use of technological resources coupled with these perks.

Conclusion

To conclude, the small business definition varies from individual to individual. It varies within different branches of the government as well. Hence, we do not have any specific small business definition. We can define it in different ways depending on who we ask.

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