Part I: The Government Definition of a "Small Business"

Everyone knows that there is a big size difference between a major corporation such as General Motors and the locally-owned convenience store on the corner. But where does your business fit in? Is it "small", and if so, what happens when your business grows? When does it cease to be small?

The designation is important when you begin to deal with the Department of the Treasury and other federal and state governments. Because many of the programs and services we offer are targeted specifically toward "small" businesses, a definition of the possible participants is necessary.

The Small Business Administration (SBA) has taken the lead in defining what constitutes a small business in the eyes of the federal government, and the SBA’s definition is the most widely used.

This body of definitions is called "size standards" and can be found in Title 13 of the Code of Federal Regulations (CFR), Part 121. Small business is defined using size guidelines for the different categories of business enterprises, which include agricultural production, communications, manufacturing, retail, service, transportation and warehousing, and wholesale. Subcategories are included under each of these headings.

Size is determined by the amount of average annual receipts or by the number of employees. Service businesses generally have a size standard that would be determined by averaging your gross annual receipts for the last three years. This average is then linked to the North American Industrial Classification System (NAICS) code for the procurement you are looking to compete under. If your average annual receipts falls under the amount designated for that NAICS code, then your firm is considered to be small by definition. For example, if you were selling Computer Programming Services under NAICS code 541511 your average annual receipts over the past three years would have to be below $21.0 million to qualify as a small business concern. For most manufacturing NAICS codes, the number of employees will be used as a size standard. For example, a mining firm is considered "small" if it has fewer than 500 employees.

Because the body of definitions is complex and constantly changing, expert advice is essential to determine whether your business is "small." For more information, please contact the Small Business Administration or examine a listing of NAIC codes.