{"id":50,"date":"2015-04-21T20:55:35","date_gmt":"2015-04-21T20:55:35","guid":{"rendered":"https:\/\/courses.candelalearning.com\/masterybusiness1xngcxmaster\/?post_type=chapter&#038;p=50"},"modified":"2024-05-03T15:30:56","modified_gmt":"2024-05-03T15:30:56","slug":"understanding-small-businesses","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/chapter\/understanding-small-businesses\/","title":{"raw":"Understanding Small Businesses","rendered":"Understanding Small Businesses"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Define small business<\/li>\r\n<\/ul>\r\n<\/div>\r\n&nbsp;\r\n<div>\r\n\r\nThe U.S. Small Business Administration, referred to as the \u201cSBA,\u201d is the go-to source for all things small business\u2014including the statutory definition of a small business. Classification as a small business is determined by size standards\u2014either number of employees or revenue\u2014based on industry. Specifically, size standards are based on the 6-digit \u201cNAICS\u201d or North American Industry Classification System code that describes a business\u2019 economic activity. Note that the form or legal structure of a business (e.g., sole proprietor, limited liability corporation (LLC), partnership, or corporation) is not a factor in determining whether an enterprise is a small business.<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/3006\/2015\/04\/02184915\/rock-silhouette-creative-music-light-group-872847-pxhere.com_.jpg\"><img class=\"size-medium wp-image-13872 alignright\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/3006\/2015\/04\/02184915\/rock-silhouette-creative-music-light-group-872847-pxhere.com_-300x200.jpg\" alt=\"decorative image\" width=\"300\" height=\"200\" \/><\/a>\r\n\r\nFor manufacturing businesses, the standard is generally the number of employees, with maximums ranging from 500 to 1,500. For example, the employee maximum for a commercial bakery is 1,000, and for a business brewery, it's 1,250. For non-manufacturing industries\u2014think retailers and wholesalers\u2014the standard is based on a three-year average of annual revenue, with the maximum ranging from $750,000 for agriculture enterprises to $38,500,000 for Electronic Shopping and Mail-Order Houses, Hospitals, and Building Material and Garden Home Centers.\r\n\r\nThe small business size standard for professional services (NAICS prefix 541) ranges from $7,500,000 for Architectural Services to $38,500,000 for Military and Aerospace Engineering. Research activities are subject to an employee standard. Financial institutions are an exception to the employee or revenue rule; commercial banks, savings institutions, and credit unions are subject to a $550 million asset limitation. Clearly, small is relative! Note that size standards change periodically (above data is current as of October 2018). For the most recent criteria information, refer to the source: <a href=\"https:\/\/www.ecfr.gov\/cgi-bin\/text-idx?SID=0ff5f0839abff4eec707b4478ed733c6&amp;mc=true&amp;node=pt13.1.121&amp;rgn=div5#se13.1.121_1201\" target=\"_blank\" rel=\"noopener\">Code of Federal Regulations (eCFR) Part 121-Small Business Size Regulations<\/a>, Section 121.201; direct link: <a href=\"https:\/\/www.ecfr.gov\/cgi-bin\/text-idx?SID=0ff5f0839abff4eec707b4478ed733c6&amp;mc=true&amp;node=pt13.1.121&amp;rgn=div5#se13.1.121_1201\" target=\"_blank\" rel=\"noopener\">Small Business Size Standards by NAICS Industry<\/a>\r\n\r\nAnother determination option is to use the <a href=\"https:\/\/www.sba.gov\/size-standards\/\" target=\"_blank\" rel=\"noopener\">SBA\u2019s interactive Size Standards Tool<\/a>. This tool is designed to answer the question, \u201cAre you a small business eligible for government contracting?\u201d The tool provides a determination of either Yes (\u201cyou may be\u201d) or No, with the relevant small business size standard. To use this tool, you need to know your NAICS code or codes (multiple selections allowed). You can use the search tool on the census.gov site to determine the NAICS code(s) associated with your primary business activity (activities).\r\n\r\nAs alluded to above, classification as a small business matters, because the SBA size standard is used to determine whether a business, including any affiliates or subsidiaries, is eligible to participate in SBA and federal contracting programs. This eligibility can have significant financial implications, from obtaining <a href=\"https:\/\/www.sba.gov\/funding-programs\" target=\"_blank\" rel=\"noopener\">access to small business financing<\/a>, including access to loans, investment capital, and grants, to preferential access to government contracts, totaling $392.4B (billion!) in eligible dollars in 2018.\r\n\r\nIn addition to meeting the relevant numerical size standard, a business must also meet the following criteria in order to be eligible for SBA and government contracting programs:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">For-profit enterprise<\/li>\r\n \t<li style=\"font-weight: 400;\">Independently owned &amp; operated<\/li>\r\n \t<li style=\"font-weight: 400;\">Physically located &amp; operating in the United States or its territories\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">If located outside the United States, it must maintain a U.S. operation and make a significant contribution to the U.S. economy through the payment of taxes or use of American labor, materials, or products.<\/li>\r\n<\/ul>\r\n<\/li>\r\n \t<li style=\"font-weight: 400;\">Not in a dominant market position nationally<\/li>\r\n<\/ul>\r\n<div class=\"textbox tryit\">\r\n<h3>PRactice Question<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/e713107c-1616-48da-8c95-5945c2860a50\r\n\r\n<\/div>\r\n<div class=\"textbox key-takeaways\">\r\n<h3>Learn More<\/h3>\r\nFor perspective, the value of small business contracts rose from $100.1 billion in fiscal 2016 to $105.9 billion in fiscal 2017. To see data by year and category (e.g., Women Owned, Small Disadvantaged Business, Service Disabled Veteran), view the source at <a href=\"https:\/\/web.archive.org\/web\/20170725201503\/https:\/\/smallbusiness.data.gov\/explore\" target=\"_blank\" rel=\"noopener\">Small Business Dashboard<\/a>. For additional information on federal contracting, visit the <a href=\"https:\/\/www.sba.gov\/federal-contracting\" target=\"_blank\" rel=\"noopener\">SBA\u2019s Federal Contracting page<\/a>.\r\n\r\n<\/div>\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Define small business<\/li>\n<\/ul>\n<\/div>\n<p>&nbsp;<\/p>\n<div>\n<p>The U.S. Small Business Administration, referred to as the \u201cSBA,\u201d is the go-to source for all things small business\u2014including the statutory definition of a small business. Classification as a small business is determined by size standards\u2014either number of employees or revenue\u2014based on industry. Specifically, size standards are based on the 6-digit \u201cNAICS\u201d or North American Industry Classification System code that describes a business\u2019 economic activity. Note that the form or legal structure of a business (e.g., sole proprietor, limited liability corporation (LLC), partnership, or corporation) is not a factor in determining whether an enterprise is a small business.<a href=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/3006\/2015\/04\/02184915\/rock-silhouette-creative-music-light-group-872847-pxhere.com_.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-13872 alignright\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/3006\/2015\/04\/02184915\/rock-silhouette-creative-music-light-group-872847-pxhere.com_-300x200.jpg\" alt=\"decorative image\" width=\"300\" height=\"200\" \/><\/a><\/p>\n<p>For manufacturing businesses, the standard is generally the number of employees, with maximums ranging from 500 to 1,500. For example, the employee maximum for a commercial bakery is 1,000, and for a business brewery, it&#8217;s 1,250. For non-manufacturing industries\u2014think retailers and wholesalers\u2014the standard is based on a three-year average of annual revenue, with the maximum ranging from $750,000 for agriculture enterprises to $38,500,000 for Electronic Shopping and Mail-Order Houses, Hospitals, and Building Material and Garden Home Centers.<\/p>\n<p>The small business size standard for professional services (NAICS prefix 541) ranges from $7,500,000 for Architectural Services to $38,500,000 for Military and Aerospace Engineering. Research activities are subject to an employee standard. Financial institutions are an exception to the employee or revenue rule; commercial banks, savings institutions, and credit unions are subject to a $550 million asset limitation. Clearly, small is relative! Note that size standards change periodically (above data is current as of October 2018). For the most recent criteria information, refer to the source: <a href=\"https:\/\/www.ecfr.gov\/cgi-bin\/text-idx?SID=0ff5f0839abff4eec707b4478ed733c6&amp;mc=true&amp;node=pt13.1.121&amp;rgn=div5#se13.1.121_1201\" target=\"_blank\" rel=\"noopener\">Code of Federal Regulations (eCFR) Part 121-Small Business Size Regulations<\/a>, Section 121.201; direct link: <a href=\"https:\/\/www.ecfr.gov\/cgi-bin\/text-idx?SID=0ff5f0839abff4eec707b4478ed733c6&amp;mc=true&amp;node=pt13.1.121&amp;rgn=div5#se13.1.121_1201\" target=\"_blank\" rel=\"noopener\">Small Business Size Standards by NAICS Industry<\/a><\/p>\n<p>Another determination option is to use the <a href=\"https:\/\/www.sba.gov\/size-standards\/\" target=\"_blank\" rel=\"noopener\">SBA\u2019s interactive Size Standards Tool<\/a>. This tool is designed to answer the question, \u201cAre you a small business eligible for government contracting?\u201d The tool provides a determination of either Yes (\u201cyou may be\u201d) or No, with the relevant small business size standard. To use this tool, you need to know your NAICS code or codes (multiple selections allowed). You can use the search tool on the census.gov site to determine the NAICS code(s) associated with your primary business activity (activities).<\/p>\n<p>As alluded to above, classification as a small business matters, because the SBA size standard is used to determine whether a business, including any affiliates or subsidiaries, is eligible to participate in SBA and federal contracting programs. This eligibility can have significant financial implications, from obtaining <a href=\"https:\/\/www.sba.gov\/funding-programs\" target=\"_blank\" rel=\"noopener\">access to small business financing<\/a>, including access to loans, investment capital, and grants, to preferential access to government contracts, totaling $392.4B (billion!) in eligible dollars in 2018.<\/p>\n<p>In addition to meeting the relevant numerical size standard, a business must also meet the following criteria in order to be eligible for SBA and government contracting programs:<\/p>\n<ul>\n<li style=\"font-weight: 400;\">For-profit enterprise<\/li>\n<li style=\"font-weight: 400;\">Independently owned &amp; operated<\/li>\n<li style=\"font-weight: 400;\">Physically located &amp; operating in the United States or its territories\n<ul>\n<li style=\"font-weight: 400;\">If located outside the United States, it must maintain a U.S. operation and make a significant contribution to the U.S. economy through the payment of taxes or use of American labor, materials, or products.<\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\">Not in a dominant market position nationally<\/li>\n<\/ul>\n<div class=\"textbox tryit\">\n<h3>PRactice Question<\/h3>\n<p>\t<iframe id=\"assessment_practice_e713107c-1616-48da-8c95-5945c2860a50\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/e713107c-1616-48da-8c95-5945c2860a50?iframe_resize_id=assessment_practice_id_e713107c-1616-48da-8c95-5945c2860a50\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n<div class=\"textbox key-takeaways\">\n<h3>Learn More<\/h3>\n<p>For perspective, the value of small business contracts rose from $100.1 billion in fiscal 2016 to $105.9 billion in fiscal 2017. To see data by year and category (e.g., Women Owned, Small Disadvantaged Business, Service Disabled Veteran), view the source at <a href=\"https:\/\/web.archive.org\/web\/20170725201503\/https:\/\/smallbusiness.data.gov\/explore\" target=\"_blank\" rel=\"noopener\">Small Business Dashboard<\/a>. For additional information on federal contracting, visit the <a href=\"https:\/\/www.sba.gov\/federal-contracting\" target=\"_blank\" rel=\"noopener\">SBA\u2019s Federal Contracting page<\/a>.<\/p>\n<\/div>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-50\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Understanding Small Businesses. <strong>Authored by<\/strong>: Nina Burokas. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>rock silhouette. <strong>Provided by<\/strong>: Photo by form PxHere. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/pxhere.com\/en\/photo\/872847\">https:\/\/pxhere.com\/en\/photo\/872847<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":78,"menu_order":4,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Understanding Small Businesses\",\"author\":\"Nina Burokas\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"rock silhouette\",\"author\":\"\",\"organization\":\"Photo by form PxHere\",\"url\":\"https:\/\/pxhere.com\/en\/photo\/872847\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"ceeb06a3-1339-477e-ae80-c8d690e84150, 523fe30e-4e28-4fac-a6e1-edcac1f3139c","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-50","chapter","type-chapter","status-publish","hentry"],"part":87,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/50","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/wp\/v2\/users\/78"}],"version-history":[{"count":81,"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/50\/revisions"}],"predecessor-version":[{"id":15319,"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/50\/revisions\/15319"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/parts\/87"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/chapters\/50\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/wp\/v2\/media?parent=50"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/pressbooks\/v2\/chapter-type?post=50"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/wp\/v2\/contributor?post=50"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-introductiontobusiness\/wp-json\/wp\/v2\/license?post=50"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}