When you think of a small business, what comes to mind? Do you envision the classic “mom-n-pop” shop on the main street of your town, complete with delightfully elderly owners and bright eyed young clerks? Do you picture a trio of programmers sitting around in a loft on beanbag chairs trying to brainstorm the next big thing on the mobile apps marketplace? How about a bustling factory that manufactures specialty manufacturing equipment for other companies around the world? A lone individual processing other people’s payroll from their home office? Believe it or not, each hypothetical scenario that I’ve described could technically be called a small business. Understanding definitions is important, especially for subjects that have as much rhetoric surrounding them as “small business” does. Today’s blog is going to cover exactly what counts as a small business and how much of an impact these businesses are having on job creation and economic stimulation.
In the political sphere, supporting small business is about as common as wearing a flag pin or getting your picture taken while wearing a hard hat. In the last presidential election, the subject got an enormous amount of play, with both sides of the political spectrum appealing to this nostalgic, “main street” vision of small businesses that I described earlier. President Obama even went so far as to call small business “the backbone of the economy.”
But are they? At first glance, it would appear so. According to the Small Business Administration (SBA), small businesses 7 of every 10 new jobs and employ 55% of the private sector’s workforce in this country. Further, the SBA asserts that small businesses have been responsible for creating 65% of the new jobs for the past 15 years. Now, these statistics seem pretty impressive. Combined with the “mom-n-pop” definition that so many people have stuck in their heads, these numbers add up to a complete vision of the success of independent enterprise, of the little guy making a difference for the good of the country.
The truth, however is a little different. While small businesses have certainly been some of the largest job creators of the past few years, the definition of what sized company counts as “small” has changed in the same time span. The general SBA guidelines for small business status are that the company must be independent and employ 500 or fewer employees. In fact, in certain industries (such as manufacturing), a company can have up to 1,500 employees. Not what you usually think of, right? The effect of this generous definition is to effectively group 99% of the companies in the United States under the category of “small business.” While small businesses may, in fact, employ over half the country, this statistic is a whole lot less impressive when you consider the size of the group.
Ultimately all business is good business for our economy!