Defining a Small Business

Small businesses are a dominant force in the U.S. economy, accounting for 99.7% of all American firms, with a staggering 28 million in operation. However, determining what qualifies as a small business can be complex.

In general, a small business has fewer than 1,500 employees and an average annual revenue of no more than $38.5 million. But, according to the U.S. Small Business Administration (SBA), the factors that make a small business depends on the industry the company falls into.

To help with this, the SBA provides an extensive table of standards to determine whether a business is classified as small. For example, the agriculture industry must have an average revenue of no more than $750,000 to qualify as a small business. On the other hand, the manufacturing industry varies, with employee caps ranging from 500 to 1,500, and around 27% of manufacturing businesses having a maximum employee limit of 500.

It’s worth noting that while these figures may seem high, businesses with less than 20 employees make up 89.6% of all U.S. business enterprises. Additionally, 23 million businesses in the United States have no employees and are run solely by their owner.

The definition of a small business matters because these businesses are crucial to the national and state economy. When officially designated as a small business by the SBA, businesses may qualify also for special programs, grants, or tax benefits.

Learn more about small businesses and how they are defined here!