What’s so ‘Small’ about ‘Small Business’

March 25, 2014


“You don’t want to work with a company as small as mine, it would hardly be worth your while.”

“What’s so ‘small’ about it?”  I asked.  I immediately detected what I refer to as SBIC….the Small Business Inferiority Complex.  I was talking to the owner of a bakery- we will call him Lloyd- that employed 10 people and did nearly 1.2 million dollars in revenue per year.  Let’s translate the impact of Lloyd’s business: 10 other human beings and their families, as well as Lloyd and his wife and two kids, all relied on the “output” of that bakery for their ‘sustenance’.  Further, Lloyd does business locally himself: his accountant, his insurance agent, his vendors and of course, all his customers are local.  Its not just that he bakes great cookies, he’s also part of the community and has a real impact on the local economy.

After reminding him of this, I asked the same question again.  He stared at me blankly.

According the Small Business Administration, the definition of “Small Business” or a “Small Business Concern” is driven by two major factors:  the average number of employees over the past 12 months or average annual sales receipts over the last 3 years.  The thresholds for these differ by industry classification and are contained in the SBA’s Size Standards Table, which is based on a company’s NAICS code.  But to give you an idea, Commonwealth Payroll & HR qualifies as one by having less than 19 million in average annual revenue over the last few years.  If we were music publishers, we would be considered small if we had less than 500 employees.  That’s a pretty broad definition, but appropriate given the mission of the SBA.

There exists another entity dedicated to small business with a much narrower focus, the Association for Enterprise Opportunity, or AEO.  While the definition of small business according to the SBA is very broad, the  mission of the AEO is to serve the interests of businesses with 5 employees and under, what is commonly known as the Microenterprise.  With no or little access to normal funding markets, the AEO supports “underserved entrepreneurs in starting, stabilizing and establishing businesses”.  According to the AEO’s statistics, microenterprise represents 88% of the businesses in the United States.  That’s a great deal of clout for such small businesses.

In all, small business (remember the SBA definition of 500 or fewer employees) account for half of the US GDP, and more than half of the employment.  Businesses with less than 10 employees account for the most jobs provided in the nation, with firms employing less than 20 employees coming in second by contributing to 18% of the employment here in the US.

So if Lloyd’s business and others like it were all to band together, hire an additional employee, the combined impact of that on payroll, employment, taxes and the local, and ultimately national, economy would be immense.  That’s what I meant when I said your business wasn’t so small, Lloyd!

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