What is a Small Business?
Before we dive into the definition of a small business, let me define what a business is first. A business is an organization or a company where goods and services are exchanged for money. In some cases, goods and services are exchanged for another. Starting a business requires a financial investment and must have customers to become sustainable. A business where inputs are less than returns, there is a profit. For a company to stay in business for a long time, it must be profitable.
Brick and Mortar
A small business in many countries provides goods and services such as a small grocery store, a bakery, a coffee shop, a barber, a beauty salon, a small neighborhood restaurant, an insurance agent, a handyman, an attorney and a dentist, just to name a few. A franchise business can also be a great small business as well, with the benefits of economies size of scale. They band together and negotiate wholesale prices in large quantities for raw materials, then share the cost to operate their business. Some popular franchises include McDonald’s, KFC, Taco Bell, Wendy’s, Pizza Hut and Subway. Franchising a business requires a separate article to fully understand.
Another new trend in business today is an entrepreneur who has an online business or multiple businesses. They can own an online store with no physical location; or be an online business consultant and never even see a client in person. Some of these trendier businesses include a website designer, an application developer, a cloud-based storage solution, a digital stock photo store, a new gaming company, etc.
Typically, these small businesses and entrepreneurs are a sole proprietor, LLC / LLP or S Corporation with no more than two to three business partners who are independently owned and operated.
Government definition of a Small Business
In California, a small business is a company that has no more than 100 employees and an average gross annual receipt of $15 million or less over the last three tax years (source www.dgs.ca.gov). The United States has a slightly different definition. The U.S. Small Business Administration classify a small business as a company with less than 500 employees and an average of $7.5 million in annual receipt. These are also government qualifications to get certifications and loans as a small business, as well as other assistance programs.
Some large banks also have different qualifications for a small business. Wells Fargo, for example, categorized a business with up to $20 million in annual revenues as small. Bank of America ranked any business with annual revenues between $100,000 to $4,999,999 and from 2 to 99 employees as small. But generally, most businesses classify themselves as small when they are truly owner operator, ranging from zero to twenty employees in most cases. Government agencies and policy makers also utilized these tools to measure if the economy is growing or whether there is optimism in the small business sector.
With so many different definitions, how do you know whether or not you are a small business? Does it matter if you are classified as a small business? Well, this is only important when you want to qualify for small business certification programs to bid for government contracts, get a small business loan through the SBA or other banks and get small business resources to grow.
These qualifications are also important for assistance programs and advocacy by various professional associations like CAAPS, chambers of commerce and advocacy groups. Our goal is to provide resources and opportunities for small businesses to grow and succeed. Many of these resources are free to small businesses, including business planning, financial workshops, employment workshops, tax and accounting workshops, energy savings program, networking events and so on.
For California companies, check out http://www.dgs.ca.gov for more information on Small Business Eligibility Requirements. For U.S. companies, you can go to https://www.sba.gov for the full requirements to be certified as a small business. There are millions of dollars in government contracts that must be granted to small businesses from the city, county, state and federal government agencies. Other important certifications to be aware of include “women”, “veteran”, “disable veteran”, and “minority” owned businesses.
Contact the CAAPS Office at Info@Acaaps.org for detailed information, access to small business loans, business and financial planning, government certification programs, government contracts and many small business resources to help your company succeed and grow.