What is a "small business", anyway?

Business growth

“Small business” is a term that gets thrown around by everyone from governments, media, lobby groups to business owners themselves. Definitions that I have heard include: a business run by one person or a couple, a business with only local reach, maybe a few employees and one or two outlets. Often we think of them as businesses that we interact with every day, such as a local supermarket, a ‘mom and pop shop’, a restaurant, the grocer, a clothing boutique or a plumber. There’s not much debate that these businesses are “small”.

As businesses get larger this definition starts to become less black and white. Where are the lines between ‘small’ and ‘medium’ when it comes to business? Is there an exact borderline? Governments and Corporates often use the general term “SME” when talking about small and medium businesses. I laugh at this; the needs and challenges of the “S” and “M” are so different. The average small business owner looks at you blankly when you use the term SME, never having even used the term 'enterprise'.

Given the sheer number and diversity of small businesses, it is not easy to talk about a ‘typical’ business, but there is a need to create boundaries of ‘small’ for the sake of discussion and policy development. There are classifications used by governments, banks, business groups and other businesses. Usually these consist of cut-off numbers of revenue, employees or even sizes of loans. There can be political or financial agendas for these definitions, especially in government definitions that relate to industrial relations. The definitions vary wildly.

Source Employees Turnover Notes
Wikipedia (1)     “A small business (also called mom-and-pop) is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships….” 
Dictionary.com (2)     ..an independently owned and operated business that is not dominant in its field of operation and conforms to standards set by the Small Business Administration or by state law regarding number of employees and yearly income
Australian Bureau of Statistics (3) ≤20  

Micro business ≤ 5 employees

Small business 5 – 19 employees

Medium business 20-199 employees

Larger business ≥ 200 employees

Small businesses tend to have the following management or organisational characteristics:

  • independent ownership and operations;
  • close control by owners/managers who also contribute most, if not all the operating capital; and
  • principal decision-making by the owners/managers.
Victorian Office of Small Business (5)     “There is no definition of ‘small business’ under the Small Business Commissioner Act 2003. VSBC staff examine each case individually.”
Australian Tax Office (6)   ≤ $2M  
Fair work Australia (1,4,7) ≤15 people   As of 1 January 2011, only businesses that employ fewer than 15 employees - by simple headcount ..
National Australia Bank (4)   $1M-$5M  
Commonwealth Bank of Australia (4)    

‘client loan balances less than $2 million' SMEs as businesses with up to $1 million in business lending and up to $2 million in total borrowings..

Westpac (4)      
St George (4)   $1M-$5M St George Bank defines SMEs as businesses with lending of up to $1 million and turnover between $1–$5M
Mutual Banking Code of Practice (4)

<100 EFT people if it involves the manufacture of goods

<20 in all other cases

  Contains two definitions, depending on whether the business manufactures or not
NSW Business Chamber (4) ≤ 20    
Certified Practicing Accountants Australia (4) ≤ 20    
Australian Chamber of Commerce and Industry (ACCI) (4)     “…not on the number of employees but the size of the loan, ≤ $2M”
Australian Treasury (4)    ≤$2M  
United States (1,8) <100 <$50M  
Europe (1,8) <75 <$10M  
Canadian IRB (9) <250    

By these definitions, an Australian small business could vary from $0 to $5 million in revenue, from 0 to 99 EFT employees and with business loans up to $2M. That is a very wide range! The interests and challenges of a home-based sole operator and a 100-employee manufacturer are very different.

My definition

From my consulting experience, looking at the operational needs of the business and business owner, I define a small business as: ‘A business where the owner (or manager) personally assumes responsibility for all of the key operational requirements and financial demands of the business.’

What that means is that the business owner has to take accountability for operations, sales, marketing, financial management and HR, usually in a hands-on capacity. At times there are others in the business that may work in these roles but there is limited dedicated resources and no one else has ultimate responsibility. The crossover definition to a medium business starts with employment of specialised skills in accountability for HR, finances, marketing, operations, etc. From what I have seen, this usually falls within the following boundaries:

  • Revenue <$3-4M
  • Staff <40-50
  • Usually privately funded.

 


Warren Harmer

Owner at The Business Plan Company

Small, fast growing and entrepreneurial businesses are my passion. I like to write business plans for them, grow them, advise them and write about them. My experience now spans over 17 years, including 3 businesses of my own. My objective is to offer instructive, hands-on, ‘how to’ information to make business ownership easier, less stressful, more successful and more enjoyable.

The Business Plan Company

26 FOLLOWERS

Business administration and support


Questions

Anonymous asks

Comments (1)

User
Loading...
Wendy Huang

Wendy Huang , Full Time Blogger and YouTuber at A Custom Blog in 4 Minutes

We went through this exact struggle when defining our small business target market definition! Thanks for pulling all this together :)