What is a small business?2 min read

Simply put, a small business is a business thats ‘small’. While thats obvious, it doesn’t really answer the question

The definition of a small business can get quite confusing. What classifies as a small business varies by industry vertical, geography (country where the business is located) and a few other factors.

These factors can include –

• Firm size by revenue – To many, a small business is based on the amount of money it makes
• Firm size by employees – and / or number of employees at all (rather than at each) of its business locations
• Establishment size – The size of the individual business location, especially if its an organization that is associated with or depends on a larger corporate entity (think franchise businesses) but runs
• Business legal structure – The way a business is legally structured (Legal Form of Organization or LFO) also signals whether its a small business. Businesses organized as a corporation are often considered larger businesses while those that are sole proprietorships or partnerships are often thought of as “small”.

The U.S. Small Business Administration defines a small business as

The SBA, for most industries, defines a “small business” either in terms of the average number of employees over the past 12 months, or average annual receipts over time. In addition, as per 13 CFR § 121.105 , SBA defines a U.S. small business as a concern that:

• Is organized for profit
• Has a place of business in the US
• Operates primarily within the U.S. or makes a significant contribution to the U.S. economy  through payment of taxes or use of American products, materials or labor
• Is independently owned and operated and is not dominant in its field on a national basis

The business may be a sole proprietorship, partnership, corporation, or any other legal form. In determining what constitutes a small business, the definition will vary to reflect industry differences – especially size standards.

source: state.gov

Our definition of a small business

A small business is one which meets most of the below criterion meets our small business definition

• Any business that is small in revenue relative to its peer group within its industry vertical.
• Any business that is small in geographic reach (typically 1-2 locations)
• All businesses that have fewer than 5 employees
• Any startup business –
• A business that runs traditionally and hasn’t yet taken advantage of all the technology backend infrastructure that is typical of a modern-day established business
• A business that is independently owned by an entrepreneur or a a group of entrepreneurs