What Is A Small Business?

Small businesses help drive the economy. There are more than 33 million small businesses in the U.S. and they account for 43% of the country's GDP, create more jobs than large businesses, and represent a whopping 99% of all U.S. businesses.

But with ‌limited margins and susceptibility to market pressures, it can be tough to build a small business that lasts — and find the information and support you need to do that.

You might be wondering: What is a small business? That's why we've put together this small business guide — from important definitions to expert growth tips and everything in between.

What you'll learn

• What is a small business?
• The perks and pitfalls of being a small business
• What to know about being a small business owner
• How to grow your small business
• Making the most of small business opportunities

A small business is a privately owned company with fewer employees and lower revenue compared to larger corporations.

A small business can take many legal forms — from a privately owned corporation or partnership to a sole proprietorship. To define who qualifies as a small business, the Small Business Administration and Consumer Financial Protection Bureau use two criteria: how many employees a company has and their average annual revenue.

As a general rule, small businesses must have fewer than 500 employees and make less than $5 million ‌ in a given year; although, exact numbers and caps vary by industry. In addition to these standards, a small business must be independently owned and operated, physically located and operated in the United States or territories (with some exceptions), and not be nationally dominant in its field.

On a cultural level, small businesses are often defined by their nimbleness, and the ones that thrive tend to be both flexible and adaptable to market demands and customer expectations.

Small businesses have their own unique advantages and challenges. Let's take a look at some of the benefits of owning a small business, the issues they face, and some effective ways to overcome these challenges.

Low overhead: Smaller companies tend to have fewer locations and minimal non-essential costs, which leads to higher profit margins. This financial flexibility allows smaller companies to be more competitive and responsive to market changes.

More control: Smaller businesses can be more responsive to customer needs and market opportunities because management and employees frequently have greater input and influence over company policies and decisions.

Personal customer relationships: Small businesses are typically closer to their customers, offering a level of personal service larger companies can't match. This often results in deeper customer loyalty and higher satisfaction, turning customers into advocates for the business.

Capital and resource challenges: Small businesses often face challenges with accessing capital, which can make it difficult to expand and modernize. This can restrict their ability to invest in new technologies or comprehensive training programs, which can stall growth and innovation.

Smaller reach: A small business might struggle to attract customers beyond their local area without the budget for extensive small business marketing, distribution networks, or strategic partnerships.

Higher vulnerability to market changes: Small businesses are more vulnerable to economic fluctuations than large companies. A small downturn can have a big impact, especially if the business doesn't have a variety of revenue sources.

Small businesses can excel by focusing on what makes them unique and being nimble. It's this agility that enables small businesses to succeed alongside larger companies.

There are many resources available to help them grow. Banks and the government offer Small Business Administration (SBA) loans and grants that small businesses can use for everything from paying rent to buying equipment, or even just getting through tough times. The government also offers grants to help spur the small business economy including startup grants, hardship grants, and grants to support minority-owned businesses.

Small business owners are often passionate about their vision, but vision and execution are two different things. Many small business owners have to learn as they go. To help with the learning curve, we've compiled a few things that every small business owner should know as they begin their startup journey (or build on what's come before).

1. Understand legal and regulatory requirements

A small business is only as solid as its foundation, so it's important to get a strong understanding of the legal and regulatory landscape. Start by visiting the Small Business Administration website to see if you qualify as a small business. Then, check out the North American Industry Classification System's website to get an NAICS code. This will help you interact with government, regulatory, and trade organizations.

Once you've established yourself as a small business, be sure to understand the relevant permitting processes, your tax obligations, and local, state, and federal laws.

2. Embrace technology and automation

Small businesses often have a hard time creating a consistent and personalized customer experience because they don't have the right tools and processes in place. Using the right technology can help you improve operations, enhance customer interactions, and coordinate departments so you can focus on the big-picture work you love.

Tools like Starter Suite set you up for success by offering an all-in-one CRM specifically designed for small businesses that brings marketing, sales, service, and commerce functions together to automate routine tasks, create personalized campaigns, and support the customer across channels.

3. Develop a strong online presence

It's more important than ever for small businesses to invest in a robust digital presence. Market shifts and evolving customer demands can happen quickly. That's why it's key for small businesses to have digital sales processes that gather customer data in one place and can adapt quickly. Small businesses can no longer rely on manual, ad-hoc processes for reaching, engaging, and maintaining customers.

Instead, they need an easy-to-use, efficient digital app that serves as a single source of truth for all customer-related information. This way, your employees can keep track of customer trends and interactions and personalize them to boost loyalty.

4. Prioritize the customer experience

Eighty percent (80%) of customers say that their experience with a company is just as important as its products or services. But many businesses — small and large — fail to connect with customers and adapt to their changing needs. As a small business, you need to differentiate. One of the most important ways you can stand out from the crowd is by providing a customer experience that is both human and efficient.

With Salesforce's AI-driven, automation-forward marketing tools, you can use Unified Customer Profiles to create personalized campaigns that write themselves. This takes the customer through a 360-degree sales, service, and shopping journey designed with their needs, behaviors, and preferences in mind.

5. Financial management and budgeting

Small businesses need to have a solid handle on their finances to succeed. Developing a detailed budget and tracking cash flow closely can help you prevent overspending and ensure financial stability. You should also regularly review your financial statements and use forecasting tools to help you predict future financial conditions and adapt your strategies accordingly.

Additionally, it's a good idea to establish a relationship with a financial advisor or accountant who can provide professional guidance tailored to your specific business needs.

6. Networking and community involvement

Building a network of contacts is invaluable for small business owners. Attending local business events, joining trade associations, and participating in community activities can open doors to new opportunities, partnerships, and customer leads. For example, collaborating with nearby businesses on joint promotions or community service projects can enhance your local visibility and reputation.

Plan your growth and be aware of the challenges that come with it. These include managing larger teams, increasing operational complexity, and maintaining quality. You'll likely spend more time and money to make sure you have the right processes in place.

An all-in-one CRM can help you scale without breaking the bank, streamlining and automating core team operations so you can grow with agility and speed.

As a small business owner, you've got access to a whole host of programs to help you succeed, from financial assistance to training and mentorship. Here are three types of small business resources to seek out to make sure your startup gains staying power. 

Small businesses make this country run — so the government has an incentive to help small business owners succeed. They created the Small Business Administration (SBA) to help aid, advise, and assist small businesses on the road to success.

The SBA helps entrepreneurs get access to capital by setting favorable lending standards and partially backing low-risk loans to small businesses. They also help small businesses get a seat at the negotiating table and get their fair share of the federal contracts pie .

The SBA doesn't just help small businesses with financing and negotiating — it also connects you with a wide community of trainers and mentors who are dedicated to helping you succeed. The SBA's Small Business Development Center offers personalized business advising and training to help you with everything from your business plan to your marketing strategy, while its business mentoring program connects you with business leaders for free, one-on-one business guidance.

But mentoring opportunities abound in your local community as well. Check out your city or town's business development organizations for opportunities to connect and network with business leaders with knowledge to share, or ask someone you admire to mentor and advise you as you build your business.

Small businesses often have a lot to juggle — but technology can help. Start by identifying the areas where your business needs the most help, then choose the technology that can automate or organize manual processes. If you need help coordinating and organizing tasks, a project management tool can help you keep your team on the same page.

If you're managing your budget and taxes, invest in a robust accounting software. And if you want to maximize your customer impact, a small business CRM can help you organize and optimize your customer data.

Small businesses are vital to the economy and employ millions of Americans. Their small size makes them nimble and responsive to customer needs, but can also make it difficult to strategize, systematize, and scale. Understanding what a small business is — and what unique processes help it succeed — is key to growing your business for the long haul.

Set yourself up for success with the right tools to automate, integrate, and inspire your teams so you can focus on growing your business.

Want ready-to-use tools that house all your customer data and relationships in one place? Get started right with Starter Suite.