Small business drives economic growth—each new idea brought to life creates jobs, innovation and opportunity. Yet, defining what makes a small business can be challenging because the term can differ by industry, number of employees and annual revenue. Nonetheless, it is important to understand how the government defines small businesses, since it can affect funding and other government programs for which these enterprises might be eligible.
According to the Small Business Administration (SBA), a small business is independently owned, for-profit and not dominant in its field of operation. It also must be headquartered in the United States and do business there. The SBA defines size standards by industry, with a cap on employee count and revenue based on industry averages. For example, a manufacturing company must have fewer than 500 employees and less than $7.5 million in revenue to qualify as small.
Choosing the right legal structure is vital to the success of small businesses. It determines your legal responsibilities and impacts the tax implications. Small businesses can be structured as a partnership, corporation, LLC or sole proprietorship.
Regardless of their structure, small businesses often have lower overhead costs and can move quickly to respond to market changes and customer needs. They may also be eligible for a long list of tax deductions. In addition, entrepreneurs in small business can benefit from networking with other owners and the chance to learn from the experiences of others. They can also tap into a greater diversity of viewpoints and perspectives, which can foster creativity and innovation.
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