What is a Small Business?

For many people, the term “small business” invokes images of a family-run local retailer with only a few employees. While operations like this are small businesses, so are a surprisingly wide variety of other companies.

Ask a business owner, a bank, and the federal government to define small business, and you’ll likely receive three wildly different answers. According to the U.S. Small Business Administration, 99.9% of U.S. businesses are small businesses, employing 47.5 % of the private workforce. The Small Business Association’s (SBA) definition is complicated at best, and even changes from time to time. While they may seem like easy terms to define, the limits for “small”, “medium” and “large” businesses can vary depending on the industry and who you are asking. 

What makes a small business “small”?

“Small” is primarily a subjective term. The definition for “small business” can change from agency to agency, even within separate branches of the same government. The U.S. Census Bureau labels small business as those having 500 or fewer employees. HealthCare.gov defines a small business as having between 1 and 50 employees. These inconsistencies mean that a business can be considered small to the U.S. Census Bureau, but not according to the health care law. Talk about an identity crisis.

SBA standards get even more confusing. While some business owners may be surprised to discover they do, in fact, own a small business according to the SBA, others will be shocked to find out they qualify as medium sized. Under the SBA’s criteria, the number of employees or the total gross income of a business will determine its official size. These numbers vary by industry.

For example, a housing construction company can accrue $36 million in annual receipts and still be considered a small business while a potato farmer is capped at $750,000. Many of the industries held to an employee limit by the SBA have a threshold of 500 or fewer for small business consideration. However, businesses in some industries, such as manufacturing, can have up to 1,500 employees and still be considered small.

Business owners can check the SBA’s Table of Small Business Size Standards to learn the criteria for their industries. The SBA reviews these standards every five years, and considers public input before updating their size limits.

Small businesses use sales tools.

Salesforce offers a few tools to help your sales teams win and keep customers. The first is CPQ Software. CPQ stands for “Configure, Price, Quote.” It takes the guesswork out of complicated pricing schemes, aids reps in creating accurate estimates, and automatically sets up a manager approval process for discounts and other processes. Small business owners can also bill customers using this software, which creates cohesion throughout the sales process.

Next is Sales Cloud, which enables access from remote devices to share files, approve processes, and input data for faster decision-making throughout the sales process.

Lastly, Einstein is the sidekick that analyzes which potential customers are closest to converting and alerts sales teams to these time-sensitive opportunities. Then, it automatically reveals which engagement strategy would be most effective for the particular situation. It also saves information about which sales strategies are converting more customers, so sales reps can use what is most effective.

All of these tools can help save business owners time and money with each completed sale.


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Why does business size matter?

With so many definitions of “small business” out there, you may be wondering why it even matters that businesses classify themselves this way. As hinted at above, there are several benefits to wearing the “small business” label. These include better chances at winning government contracts, securing low-interest loans, and qualifying for certain tax breaks. 

Small businesses get government contracts.

The U.S. government aims to secure at least 23% of their contracts every year with small businesses across the nation. This standard helps smaller companies compete with giants for government contracts, while also boosting job creation and the overall economy. It’s a win-win for local small business owners and the country as a whole. Businesses seeking one of these government contracts must meet the SBA’s definition of small business before registering for the contractor database. 

Small businesses get better loans.

Small businesses are eligible for better SBA-backed loans than their larger counterparts. These loans typically have lower interest rates and more flexible repayment terms in order to help small businesses get off the ground. The loans come with strict guidelines governing what businesses are eligible. Since they are backed by the SBA, their guidelines determine which businesses are considered “small”.  

Small businesses get more tax breaks.

Small businesses also enjoy a slight advantage when it comes to taxes. On top of the normal deductions all businesses are afforded, there are a few extra bonuses only for small businesses. One of these is the Health Insurance Tax Credit. Businesses with fewer than 25 employees can claim this credit of up to 50% of costs paid toward employee premium costs. Check out this list for more tax deductions small businesses may be eligible to take.

Small businesses have their perks.

Small businesses also benefit from dedicated organizations devoted to helping them succeed. Groups like the National Federation of Independent Business and the Small Business and Entrepreneurship Council provide small businesses with advocacy, educational resources, research, legal help, and even discounts on certain products and services. 

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What other resources can small businesses use to help them succeed?

Plenty of resources are out there to help small businesses get started on the path to success. Key resources include funding sources, mentors or motivational tools, legal counsel, and software tools. 

Small businesses need funding.

Without funding, many small businesses wouldn’t even make it to opening day. Since small businesses can access SBA loan options with lower interest rates than typical business loans, many small business owners look for qualified banks to partner with them in their funding venture. Not all banks can offer SBA loans, so it’s worth the legwork to look for an institution that can offer great rates now, and competitive offerings should you grow past “small” status.

Some banks specialize in either personal or business banking. This means small business owners have their business account at a different bank than their personal accounts. However, if a small business owner is using personal funds to invest in the business, it may be easier to keep both types of accounts under one roof.

Small businesses need a mentor.

Mentors can walk a small business owner through the process of starting a business, avoiding critical mistakes, and maximizing profits from the start. Sometimes small business owners will hire a business consultant in place of a mentor, or to supplement their mentor’s limited expertise. Regardless, a mentor can prove invaluable to a small business owner, even if they are there primarily for moral support.
Whether for deciding between S-Corp and LLC, reviewing contracts with vendors, or procuring copyrights for intellectual property, every small business owner should find a good business attorney sooner rather than later. Not only can business attorneys help prevent mistakes that could lead to lawsuits, but having a trusted advisor to turn to can ease the general anxiety associated with navigating business law. Attorneys aren’t only good for handling lawsuits, though. They can be a great resource for general business questions as well. Tip: Small business owners can minimize attorney fees by drawing up paperwork on their own, and having their attorney review it to ensure it meets legal and industry standards. 

Small businesses need small business software.

Many small businesses use small business software to help them with training employees, customer service, marketing, sales, and more. Software can help save on the cost of hiring full-time staff to manage each of these divisions. Good software also saves the ever-busy small business owner time by putting critical information at their fingertips and automating routine tasks. Salesforce is a company leading the way in affordable cloud-based small business software options, including the small-business-friendly Salesforce Essentials package.

Small business owners can also find software tools tailored to the unique needs of specific industries, including retail, government, and healthcare. While small businesses may only need a few software tools in the beginning, software with cloud technology leaves room for expansion as the company grows. Customer relationship management (CRM) software helps businesses respond quickly to customers, support remote connectivity, and easily create accurate quotes for products or services. CRM software can help increase efficiencies in the near term while supporting future business growth, which is why small businesses can greatly benefit from this type of investment.

Small business is what you make of it.

“Small business” is an easy term to say, but a difficult one to define. When looking for a loan or a government contract, small business may be defined by various business regulations. While individual small businesses may pale in size when compared to their giant competitors, taken as a whole, small businesses secure a large portion of the nation’s economy. Small businesses are afforded some perks to help them keep up with industry titans, including better interest rates on loans and special access to small business advocacy groups. These perks, coupled with a few critical resources, can really boost a small business’ growth potential. No matter the size, all businesses are valued for the services they provide and the jobs they offer.

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