Newsletter Archive - Research
What is a "Small Business"?? Inquiring Minds Want to Know.
06/23/2005 - Yellow Pages is often noted as the primary advertising source for small to mid-sized businesses. I began to wonder a little about that premise since I have a small business that has been around for nearly two years, and have never gotten a call from a Yellow Pages publisher despite the presence of 4 of them in my area. How come? Could it be because I run the business from my home? Could it be because my cell phone is the official company telephone number listed with the state the business is registered in? So I went in search of a definition of exactly what a "small business" is.
We all know that "small business"es may be run by one or more individuals, can range from home-based businesses to corner stores or construction contractors and often are part-time ventures with owners operating more than one business at a time.
Just how important are small businesses to the U.S. economy? Here are several factoids I discovered in search of a definition for "Small business":
- Represent more than 99.7 percent of all employers.
- Employ more than half of all private sector employees
- Pay 44.5 percent of total U.S. private payroll.
- Generate 60 to 80 percent of net new jobs annually.
- Create more than 50 percent of non-farm private gross domestic product (GDP).
- Supplied 22.8 percent of the total value of federal prime contracts (about $50 billion) in FY 2001.
- Produce 13 to 14 times more patents per employee than large patenting firms. These patents are twice as likely as large firm patents to be among the one percent most cited.
- Are employers of 39 percent of high tech workers (such as scientists, engineers, and computer workers)
- Are 53 percent home-based and 3 percent franchises.
- Made up 97 percent of all identified exporters and produced 29 percent of the known export value in FY 2001.
Sources: U.S. Bureau of the Census; Advocacy-funded research by Joel Popkin and Company (Research Summary #211); Federal Procurement Data System; Advocacy-funded research by CHI Research, Inc. (Research Summary #225); Bureau of Labor Statistics, Current Population Survey; U.S. Department of Commerce, International Trade Administration.How many small businesses are there? In 2002, there were approximately 22.9 million businesses in the U.S., according to Office of Advocacy estimates. The Internal Revenue Service (IRS) estimates there were 26.4 million business tax returns in 2002; however, this number may be higher than the actual number of firms, as one business can operate more than one taxable entity.
The number of small businesses continues to grow. IRS estimates the number of sole proprietorships (roughly equivalent to non-employers) increased by 1.9 percent in 2001 and by 2.7 percent in 2002. Census data show there were 5.7 million firms with employees and 16.5 million without employees in 2000. Applying the sole proprietorship growth rates to the non-employer figures and similar Department of Labor growth rates to the employer figures will give you the 22.9 million figure estimate from the Office of Advocacy. But note: that's also a calculation.
Certain areas/regions also have shown different rates of growth. For example, according to the U.S. Census, the number of businesses with one or more owners but no paid employees grew nationwide from 17.0 million in 2001 to more than 17.6 million in 2002, a growth rate of 3.9 percent. The rate of increase during the 2000 to 2001 period was 2.7 percent. The report I first found - Non-employer Statistics: 2002, showed that Nevada led the nation in the growth of these small businesses with a 7.4 percent increase between 2001 and 2002. Georgia slipped from first place in 2001 to second place in 2002, with a 6.3 percent increase. Florida also experienced growth of 6.3 percent. Texas and Delaware rounded out the top five states in non-employer business growth both with 5.2 percent increases. (Click here for full table.)
Now the kicker that's related to Yellow Pages -- different business segments are growing at different rates. For example, significant growth between 2001 and 2002 included:
- landscaping services (21.5 percent)
- janitorial services (20.4 percent)
- nail salons (8.7 percent)
- real estate agents (7.1 percent)
- child-care providers (5.9 percent)
- beauty salons (5.6 percent).
The legal definition of a small business is determined by the U.S. Small Business Administration (SBA). Title 13, Part 121 of the Code of Federal Regulations sets forth in detail the criteria to be used by the Small Business Administration (SBA) in making small business determinations. Examples of these criteria include the number of workers employed by a business, annual receipts, and the nature of the any relationships with affiliates. The SBA establishes small business "size standards" on an industry-by-industry basis using statistics from a wide range of sources. There are size standards in each industry (e.g. manufacturing, heavy construction, specialty trade construction, retail trade, etc.) that a business must meet in order to be considered small. Following is a list of the most common size standards used by the SBA to determining whether or not a business is "small".
- 500 or fewer employees for most manufacturing and mining industries (a few industries permit up to 750, 1000 or 1,500 employees)
- 100 or fewer employees for all wholesale trade industries
- $6 million per year in sales receipts for most retail and service industries (with some exceptions)
- $27.5 million per year in sales receipts for most general & heavy construction industries
- $11.5 million per year in sales receipts for all special trade contractors
- $0.5 million per year in sales receipts for most agricultural, forestry and fishing industries
- Management and ownership is rarely separate.
- Control over business operations and decisions reside with one or two persons, who are usually family members.
- The equity in the business is not publicly traded.
- The personal security of the owners is required to secure business debt. Limited liability is rarely present.
- The level and number of formal contractual relations are kept at a minimum level.
- Personal objectives of owners will guide and directly influence business decisions.
Stay tuned for next months article.