What Is The Real World Definition Of Small Business - and Why The Government Has It Wrong! Read If You Dare --- and Weep. Then Share!
What is Small Business?
It is in the eyes of the beholder.
For example, some perspectives I have heard over the years:
o The Federal government sets the standards with an eye on the distribution of government procurement dollars. One agency has that responsibility and that is all there is to it. o Mega providers of services to the private sector tend to classify the size based on their potential as a source of revenue, i.e. as a customer. The practical limits of their geographic service area tends to influence their thinking. o Manufacturers tend to think in terms of the return on invested capital, and like to do cost benefit analysis of human time versus other ways to accomplish the same end result. Logistics and size of market tends to provide some practical bounds on their thinking. o Economic development organizations and elected officials think in terms of more jobs (and grateful voters) in the geographic arena that they can tax, so bigger is better, and gets more coverage in the media. More small businesses is viewed as a consequence of getting big business into one's arena, rather than as a prime source of jobs.
Then there is the reality of the way the system tends to work: the higher the education, the better the pay and lifetime earnings. It has been observed that a college education tends to train individuals to be good employees, the military trains them to be good leaders, and large entities want compliant skilled personnel in all levels of their human capital resources.
But most small business formations take place by those that do not tend to be compliant, or those that have no choice. If they can build up to 20 employees or so, they tend to survive. But that transition from a solitaire to 20 employees is an arena that cannot truly be understood by anyone who has not lived through the process -- any more than one who reads about swimming, but never has been in the water. If that person has worked only for large employers or the government, you can probably guess what will be the odds against their success from this commentary.
Sadly, the voice of those in the ultra-small category is not heard when it should be heard. So this little voice is whispering in the wind. Maybe it will grow one day to be heard. Do you want to help? Then let me know.
So what are the size standards that are used to define Small Business? Verizon, the mega provider of telecommunication services defines small business as 20 or fewer employees; they call those with 20 to 1,000 employees "medium businesses", and of course, those with more than 1,000 employees, are big (from their web site as one of their customers).
Federal Government's Summary of Size Standards by Industry
The national challenge comes from trying have the definition be either "small" or not.
To see how this addressed by those inside the rapidly expanding Federal Bubble, the following is from their official source:
To qualify as a small business concern for most Federal SBA programs, small business size standards define the maximum size that a firm, including all of its affiliates, may be. A size standard is usually stated in number of employees or average annual receipts.
SBA has established two widely used size standards—500 employees for most manufacturing and mining industries, and $7 million in average annual receipts for most nonmanufacturing industries. While there are many exceptions, these are the primary size standards by industry. (For more complete information on size standards, see SBA’s Small Business Size Regulations (13 CFR §121) or the Table of Small Business Size Standards).
Construction o General building and heavy construction contractors: $33.5 million o Special trade construction contractors: $14 million o Land subdivision: $7 million o Dredging: $20 million Manufacturing o About 75 percent of the manufacturing industries: 500 employees o A small number of industries: 1,500 employees o The balance: either 750 or 1,000 employees Mining o All mining industries, except mining services: 500 employees Retail Trade o Most retail trade industries: $7 million o A few (such as grocery stores, department stores, motor vehicle dealers and electrical appliance dealers), have higher size standards, but none above $35.5 million. Services o Most common: $7 million o Computer programming, data processing and systems design: $25 million o Engineering and architectural services and a few other industries have different size standards. o The highest annual-receipts size standard in any service industry: $35.5 million o Research and development and environmental remediation services: the only service industries with size standards stated in number of employees Wholesale Trade o For small business Federal contracts: 100 employees, and the firm must deliver the product of a small domestic manufacturer, as set forth in SBA’s nonmanufacturer rule, unless waived by the SBA for a particular class of product. For procurements made under the Simplified Acquisition Procedures of the FAR and where the purchase does not exceed $25,000, the nonmanufacturer may deliver the goods of any domestic manufacturer. o For loans and all other programs: 100 employees is applicable for all industries. Other Industries o Divisions include agriculture; transportation, communications, electric, gas, and sanitary services; and finance, insurance and real estate. o Because of wide variation in the structure of industries in these divisions, there is no common pattern of size standards.
All Categories o For specific size standards as of January 1 of each year, refer to the size regulations in 13 CFR §121.201. SBA's Table of Small Business Size Standards includes all changes and modifications made since January 1 of the most recent year.
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