What is the Definition of a Small Business?
The Small Business Administration (SBA) is a government organization established to support small businesses in the United States. The Small Business Administration is designed to protect the interests of small businesses in the public and private markets. A small business is defined as a type of company that has fewer than one hundred employees. Small businesses are:
Generally privately owned corporations.
Singular ownership that has less than one hundred employees and less yearly revenue than a typical large corporation. In addition, a small business may be owned by a sole proprietor or by a partnership.
Because the definition of a small business is a composite of several different criteria, the SBA publishes a continual updating list of criteria defining a small company. For an accurate understanding of how this definition of a company affects your enterprise, it is essential first to understand how SBA professionals determine the classification of your company. Essentially, the determination of what your company represents is made through a survey of your workforce and critical business activities performed by your employees. To this end, when your company satisfies one of the five standard criteria listed below, you will be considered a small business.
According to the definition, the SBA also considers the number of customers and sales your company receives. In terms of customer service, the SBA takes customer satisfaction into account because the number of satisfied customers and their satisfaction impacts a company’s success. The SBA additionally measures your company’s sales performance against competitor’s sales during similar periods. Finally, the SBA considers the amount of revenue and investment your company makes because its size often indicates the amount of risk it is willing to take. These measurements are referred to as the company’s size standards.
The company size standards also include the number and percentage of employees that are exclusive of outside sales. If your business consists of fifty employees or less, you will qualify for the sole source rule. Under this rule, employees that are not exclusive to your company receive half of the overall percentage of the sales for that business. Additionally, if your employee turnover rate is fifteen percent or less, you will also qualify for the sole source rule.
The second definition of a small business meets all of the size standards. According to this definition, a small business is any corporation that has fewer than one hundred employees that meet all of the size standards. Furthermore, these corporations must also have seasonal revenue. Additionally, the definition does not require that small businesses have a high level of employee turnover.
The third definition of a small business meets the medium size standards. According to this definition, a small business has between one hundred and one thousand employees that meet all size standards. However, companies that exceed the medium size standards cannot be sole suppliers or box stores. Furthermore, the definition does not require that businesses have specific product lines, uniform distribution channels, or consistent accounting practices.
The fourth and final definition of a small business meets the extensive size standards. According to this definition, small businesses have at least one thousand employees or greater that meet all size standards. Additionally, these companies do not have exclusive distribution channels and do not have high levels of employee turnover.
As you can see, the United States government has several different criteria when considering small businesses for government contracts. To be regarded as a small business for one of these contracts, many criteria must be met. In addition, employees of these companies have to be highly knowledgeable in the products that the company offers. This makes these businesses very desirable to many government agencies.