What is a Small Business?

To many, a small business is based on the amount of money it makes and number of employees at all (rather than at each) of its business locations.

This definition of “size” aligns with the U.S. Small Business Administration’s (SBA) definition of a small business. SBA’s Table of Size Standards provides definitions for North American Industry Classification System (NAICS) codes, that vary widely by industry, revenue and employment.

It defines small business by firm revenue (ranging from $1 million to over $40 million) and by employment (from 100 to over 1,500 employees).

For example, according to the SBA definition, a roofing contractor is defined as a small business if it has annual revenues of $16.5 million or less. But an Asphalt Shingle and Coating Material manufacturer is defined as a small business if it has fewer than 750 employees.

These statistics help users understand how individual businesses that are part of a larger company or firm may be able to withstand economic shocks better than businesses with only one location.

For example, the nation’s 37,513 Limited-Service Restaurant (NAICS 722513) firms with fewer than five employees in 2017 accounted for 23.7% of the 157,214 firms in this industry but only 4.0% ($10.2 billion) of the total sales in this industry.

So, if our practical definition of “small” aims to capture 50% of the revenue of all firms in this industry, firms with fewer than 250 employees may be a good cutoff to use for “small” in this industry, as these firms accounted for 51.7% ($131.1 billion) of the total revenue of $253.3 billion in 2017.