Small business is a company that operates on an independent basis and typically has fewer employees than larger corporations. These companies can be privately owned or operated through a corporation, partnership or sole proprietorship. They may be in the manufacturing, retail or service industry. Small businesses are the backbone of the American economy and provide jobs for millions of people. They can also serve as a catalyst for economic development in communities. Small businesses can benefit their owners in a variety of ways, including by providing greater autonomy than would be possible at a large company and by generating higher profits. In addition, a small business may be less bureaucratic, enabling it to move more quickly to market.
In the United States, there are more than 28 million small businesses. These businesses range in size, from sole proprietorships that have one employee to publicly traded companies with hundreds of employees and billions of dollars in revenue. To qualify as a small business, a company must meet a standard established by the U.S. Small Business Administration (SBA). These standards are based on revenue and number of employees and vary by industry. In order to qualify as a small business, vendors must adhere to industry size standards and self-certify their size status through the System for Award Management. The SBA sets these standards to ensure that small businesses receive equal opportunities for federal contracts.
Whether or not a company is considered to be a small business depends on a combination of factors, including the legal structure, number of employees and revenue. For example, a small business may be defined by the number of full-time employees and the property it operates from, while a business with comparable profits that employs workers across multiple locations could be considered a large company. The definition of a small business can also vary by industry and even state.
Some government agencies set revenue and employee limits that define a small business, while others consider other considerations, such as location, financial motivation and structure. For example, the SBA considers a cotton farm or beef cattle ranch to be a small business, but not a poultry hatchery. Similarly, the SBA establishes different revenue thresholds for various types of agriculture.
There are many benefits of running a small business, but it isn’t for everyone. Owners of small businesses are generally required to put more of their personal assets at risk than their counterparts at larger companies, and they can often lose everything if the business fails. In addition, a small business can be more expensive to operate than a larger company and it can be difficult to manage cash flow. However, if a small business is successful, it can generate substantial profits and create thousands of jobs. Regardless of the type of business, a small business can be profitable if it follows certain basic principles: developing a strong marketing plan, keeping accurate records and managing finances effectively. To learn more, read How to start a successful small business.