Did you know that 3% of small businesses control 50% of all small business growth profit? Or that 49% of the nation’s small businesses are operated from home? How about the fact that 16.3 million Americans work while in their car?
Statistics like these, and countless others, led us to ask the question, “What does it even mean to be a ‘small business’ in today’s market?”
The answer may be more complicated than you might think.
Let’s Get Technical
What you consider a being small business may not exactly line up with how the government classifies corporations. Technically speaking, if an organization files taxes as part of an S corporation, a partnership (LLC corporation for instance), or a sole proprietorship, then they are considered a small business by the federal government—it’s as simple as that. This means they will get a Form K-1 or 1099, and/or file a Schedule C and E.
The technical definition helps in understanding why a small business may not be “small” at all. For example, some of the most profitable industries in small business—chiropractors, accounting services, dentists, etc.—can bring in over $10 million in revenue annually, according to Forbes.
At first glance, it would seem obvious to say that these companies aren’t “small” by any means, but according to the technical definition, “small business” doesn’t refer to its size, but rather type.
The SBA Shaking Things Up
Although the size of a business is ultimately not what determines its classification, the U.S. Small Business Association (SBA) does place certain limitations regarding the number of employees a small business may have and how high their annual receipts can add up to depending on the industry.
For most American industries, there must be fewer than 500 employees to qualify for SBA tax programs. (For a comparison, this number is fewer than 15 in Australia, and fewer than 50 throughout the European Union.) However, new guidelines proposed by the SBA will update these size standards for businesses in 70 different industries.
According to the Fox Small Business News Center, the updated guidelines will go into effect July 22, 2013, allowing more than 15,000 businesses that previously were too big for small business benefits to now qualify under the new regulations.
While the change is good tidings for these businesses that will qualify, many companies complain that companies on another level will now get the same benefits they currently do, and it will make the competition much fiercer for select federal small business contract spots.
So what does this all tell us about what it means to be a small business in today’s market? Basically that the term “small business” is a classification applied to organizations of all shapes and sizes, and the rules to qualify for that classification are changing all the time. In other words, small business is a fluid entity.
Perhaps that’s not an answer that inspires much assurance when deciding to incorporate your business. But if you don’t like it, just wait a while. It’s bound to change again.