How Big Can a Small Business Be?
CHICAGO ( TheStreet) -- Small business is one of those terms we take for granted -- until we try to dig down to what it really means. In the United States, a small business can be anything from a suburban coffee shop to a rural farm stand to a thriving manufacturing company that exports worldwide, with workforces that vary from one person to hundreds of employees. Can one definition cover such radically different enterprises?
The flexible nature of "small business" became even more obvious this year, when the Small Business Administration revised its guidelines for exactly how small a company must be to be eligible for its services and loans. In its latest attempt to categorize small businesses, the SBA expanded the maximum size of businesses in more than two dozen industries, with some definitions stretching the meaning of "small."
In farming and agriculture-related businesses, "smallness" is measured by revenue, not employment, acknowledging the seasonal and short-term nature of much farm work. Most farming operations are considered "small" if they make $750,000 a year or less, yet a company that offers farm management services is "small" if it makes less than $7 million.
Switch to building-related companies (another field where employees tend to be short-term and/or seasonal), and the numbers are drastically higher. According to the SBA, a "small" remodeling or contracting business is one that earns $14 million or less a year. A residential or commercial construction company, however, can make up to $33 million a year, yet still get the preferential services and loan terms of a "small" business.
Most industries that produce durable goods are classified by employment, with the maximum number of workers ranging from 500 to 1,000 to be considered a small business. (Companies that sell wholesale, on the other hand, can have no more than 100 employees.)
Whether a business is small depends in part on what it produces: if you make cheese or chocolates, you're small if you have 500 employees or fewer, but if you make shoes or process tobacco, you can have up to 1,000. And companies in the ammunition or aircraft-building business get a special dispensation: They can have up to 1,500 workers.
For retail operations, total revenue is used as the basis for judging whether a business is small. In general, the maximum size ranges from $7 million (hardware stores) to $30 million (boat stores and electronics shops). But there can be large variations even within the same industry: A shop that sells women's clothing is considered "small" by the government if it has revenue of less than $25 million, but a jewelry boutique with the same amount of revenue cannot take advantage of the SBA's small-business services (it must have sales of $14 million or less to qualify).