StreetFightMag notes that if one were to Google the words “small business,” one should expect some 1 billion results. The reason? Small business is the mainstay of the economy in the United States and accounts for the places that American consumers visit the most.
Take, for example, local “Mom and Pop” shops, food trucks, and other independent businesses, which account for approximately 46 percent of the country’s private, non-farm gross domestic product (GDP); 63 percent of this country’s net new jobs; and 49 percent of private sector payrolls. But, because these numbers are rapidly trending down, small businesses receive an array of incentives that include various credits, rebates, and programs. In fact, according to Sidewalk’s, Mo Yehia, some estimates point to a $50 billion figure for what states and localities extend in small business tax incentives annually by states and localities.
So, what constitutes a small business? As it turns out, there is no clear-cut consensus among the experts, according to Mr. Yehia.
For example, according to the Small Business Administration (SBA), which is the Federal Government’s branch that supports entrepreneurs and small businesses, a small business is: “500 employees for most manufacturing and mining industries and $7.5 million in average annual receipts for many nonmanufacturing industries. However, there are a number of exceptions … by sector.” SBA provides 45 pages of exceptions. In the manufacturing sector, for example, the maximum number of employees is not 500, but is, rather, 1,500. While in the construction sector exception indicates that maximum yearly receipts are not to exceed $17 million.
Other experts provide definitions, but there is still division. For example:
- Australian Fair Work Act: “A small business is defined as any business with fewer than 15 employees.”
- European Union: “A small business is defined as any business with fewer than 50 employees or less than or equal to 10 million Euros in either (annual) turnover or balance sheet assets.”
- Virginia Secretary of Commerce: “The current formula says a small business must have fewer than 250 workers or max out at $10 million a year in averaged annual revenue.”
Yet, other experts break small business down to any number of sizes and types—micro, small, medium, large, enterprise—but with no real definition. Typically, some combination of industry, revenue, market share, and headcount is used, Mr. Yehia writes.
Definition is important, says Ami Kassar: “There is little dispute that there are some 27 million small businesses in the United States. There is also little dispute that the vast majority of them have revenue of $1 million or less. It would probably be conservative to estimate that 99 percent of them have revenue of $5 million or less. So when one starts throwing around numbers of $20 million or less, you start to muck up all the stats and hide the reality of what’s happening in the market.”
Given the sheer number of small businesses in the U.S., some definition on which individual and corporations may agree will assist in data and statistical analyses, market interpretations, and meaningful marketing, especially given the numbers, writes Mr. Yehia:
- Businesses with fewer than 500 employees: 30 million
- Businesses with a physical location (brick & mortar): 20 million
- Businesses with physical locations that are independent operations/non-chain with less than 6 locations: 10 million
- Businesses with physical and independent locations that are consumer-facing (B2C not B2B): 5 million
So-called “Very Small Businesses” (VSBs)—fall into the final category with 5 million businesses. These are the massive demographic of “single-location, neighborhood” businesses that comprise a huge array of services and products— physician and lawyer offices to hair salons to dry cleaners to boutiques—where consumers spend most of their money. Mr. Yehia tells us not to minimize the VSB: “While that VSB isn’t on Ello and is most definitely not even close to being Salesforce certified, they also shouldn’t be (hint: stop advertising to them).”
Yehia, Mo. StreetFightMag; So How Do We Define a ‘Small Business’ Anyway? July 24, 2015.