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What Is Small Business Anymore? A Mindset?

As "Small Business Saturday" on Nov. 24 approaches, should the definition of "small business" go by number of employees, sales volume, assets, net profits or some other element in today's circumstances?

What currently constitutes a small business varies widely around the world. Small businesses were typically privately owned corporations, partnerships or sole proprietorships. However, in today's evolving business world at break-neck paces, more and more people are finding themselves in hybrid work situations that now also could be considered "small business" from some viewpoints.

Donna Babbitt, chair of Business, Accounting and Social Sciences at St. Louis Community College-Wildwood, said the traditional principles of small business owners—agility, operating lean, anticipating next steps, reacting quickly and proactively adopting change—are extremely helpful business approaches, no matter what size of company in which one is operating.

"One way to analyze small businesses is to determine how they are structured:  as a corporation, LLC or sole proprietorship. You then can add whether a business is local or regionally based," said Babbitt.

What constitutes "small" in terms of government support and tax policy varies by country and by industry, ranging from:

  1. fewer than 15 employees under the Australian Fair Work Act 2009,
  2. 50 employees according to the definition used by the European Union,
  3. fewer than 500 employees to qualify for many U.S. Small Business Administration programs.

Small businesses also can be classified according to other methods, such as sales, assets, or net profits. And how should franchise owners be classified? They may not have many employees, but they often are plugging into large, worldwide brands, services and ready-made tools, such as McDonald's—which is not the same as a "mom and pop" operation built from scratch.

Babbitt said a general rule of thumb used in business and in college courses is 50 employees or less constitutes small. "But in today's business climate, it's a bit of a moving target. We have adult students who are small business owners or contractors, and they are finding themselves in a broad range of work arrangements that sometimes could be defined as small business during certain phases of projects, and other times large."

Babbitt cites small retail stores with only 20 employees but millions of dollars in revenue as an example of another type of blended definition. "I would say there's middle-sized and large-sized operations within small businesses."

"No matter the operating size of a company, it seems more and more business managers are having to think like small business owners always have. Where's the revenue stream coming from? What expenses are there? How can I pay for healthcare costs? How will I finance everything? From where will our paychecks come?" said Babbitt.

Between Black Friday and Cyber Monday is a day dedicated to supporting small businesses nationwide. This year, that day will be observed on Nov. 24. Last year, more than 100 million people came together to Shop Small in their communities on Small Business Saturday.

Editor's Note:  What are your favorite, local small businesses? Share them in the comments' section of this article so we can plan to speak with them and feature them in the coming month.

Julie Brown Patton October 31, 2012 at 12:39 PM
The 500-employee size definition for small businesses applies only to manufacturers, per an email received this morning from Michael Stamler, of the Small Business Administration after he saw this article. "The vast majority of business are in retail and service sectors, and have a much lower standard, one that is denominated by total revenues and not numbers of employees. That definition is generally $7 million in annual total revenues, although there are some exceptions," he shared.

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