Small Business 101 – The Definition of a Small Business

Small businesses are privately held companies, partnerships, or singular proprietorships that typically have fewer employees than a typical large corporation or business, and/or less yearly sales than a normal-sized enterprise. Many of these companies are considered to be family enterprises and are often family enterprises that have been in operation for over one hundred years. As with any successful business, there are always tips and advice for small business owners to help them make their ventures even more successful.

The first definition is the income that a small business makes from its services or merchandise sold. This definition differs slightly from the broader definition of what an enterprise produces, as some small businesses produce items or services that their employees perform, and some produce the products or services of another firm that employs workers who perform those tasks. Other definitions define a small business as any company that has fewer than twenty-five employees. (The term “small” is relative; it does not necessarily depend on the number of employees.) This latter definition would include many seasonal, home-based, or self-employed ventures.

The second definition is “generally” revenue-oriented. Revenue may come in many different forms, but revenues most often come from customers or clients purchasing products or services, paying employees, or borrowing money from a business. The third definition is “generally” revenue-oriented, as the other definitions would require the enterprise to generate all of its revenues, and therefore, small businesses cannot be strictly revenue-oriented.

Small business size does depend on the type of business. Some small businesses are home-based, and others are office-based. Home-based businesses usually do not have salespeople, office managers, or inventory clerks. Office-based businesses, on the other hand, employ people who can manage product inventories, manage payrolls, and work with customers and lenders. To help achieve the latter goal, small businesses should be operated as efficiently as possible.

The next four tips are key takeaway topics for small business owners. The first is that employees are important. While it may seem intuitive that the best advantage of owning a small business is that you don’t need a lot of employees, this is not necessarily the case. Employees are vital to the success of any business. Keeping your staff happy will make them more productive, which will lead to more sales and productivity, both of which are important advantages of owning a small business.

The second tip is to think about incorporating. While incorporating an S-corporation may seem like a complicated process, in reality, it provides significant advantages for small business structure. If you own a company that is five people deep, but wants to expand to ten people in a relatively short period of time, incorporating allows you to set up a limited liability company, which allows you to enjoy the advantages of incorporation without having to provide management or taxes. On the other hand, if you incorporate with a C-corporation, you will still be required to register your company, pay taxes, manage your company, and deal with management, all of which are advantages of the S-corp model, not to mention the legal advantages associated with it.

The third point is that the definition of “S-corp” is vague. The Small Business Association defines a S-corp as a corporation that has fewer than 38.5 thousand shareholders and has no publicly traded common stock. The association further defines a S-corp as having fewer than two percent common stock owned by the individual members of the corporation, and that has fewer than two percent of its total assets invested in equities. In either case, therefore, the definition of a small corporation is somewhat hazy. The Small Business Association also emphasizes that the term should not be used to describe any publicly traded partnership that meets the above criteria.

The definition of a small business in the present times appears to be a hybrid of the C-corporation and S-corp categories. As a hybrid, it probably describes small businesses that exist today as franchises operated by large franchisors. Some franchisees own a small business through a sole proprietorship, or they may have multiple businesses that are themselves small businesses. The small business size in these cases may even be a franchise. As an ever-increasing number of new small businesses are being launched every year, the term small business size is likely to continue to change, with the result that the meaning of the term may become more flexible over time.

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