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What Is A Small Business?

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What is a small business? 

Well, everyone knows that, don’t they? 

Well, don’t we???

Actually, there is no widely accepted definition of a small business that I can find.  If you own a business with 100 employees, and I own one in the same industry with just two, your business looks pretty big to me.  Yet you consider yourself small because just down the road is another business with 10,000 employees.

To the Better Business Bureau a small business is any company with fewer that 100 employees.  

To the Small Business Administration, it’s whatever size congress specifies, including corporations as large as American Motors some years ago. 

According the IRS, a small business is any for-profit enterprise with fewer than 500 employees, a definition which makes 99+% of all U.S. businesses small businesses.   According to this standard, less than 1% of the businesses in our economy are mid-sized to large. 

This seems rather an extravagant definition when you consider that only 11% of all U.S. businesses have more than 20 employees, meaning that 89% of all tax filings are from businesses with fewer than 20 employees. 

Furthermore, 72% of all business tax returns, either corporate or schedule C filings, are submitted by individuals with a full or part-time business, yet only have one employee -- themselves.

So, the median average size of  business in this country is a self-employed person with no other employees.

 The 72% breaks down as follows:
  • 59.7% are single employee full-time businesses, and
  • 40.3% are single employee part-time businesses. 
The businesses that are out of the ordinary in our economy are mid-sized to large businesses.  And the percentages of businesses with fewer than 20 employees is growing much faster than are mid-sized and large firms.

With this information in mind, what is a small business?  As you might guess, I’m going to offer a definition which follows: 

The Categories Of Business:
  • Big Business: Is a for-profit enterprise with one or more owners in which the owner(s) are represented by a professional board of directors who direct business functions and implement their decisions through hierarchies of professional managers and supervisors. Generally, a business with more than 500 employees.
  • Mid-sized Business:  Is a for-profit enterprise with one or more owners in which the owner(s) implement their decisions and direct business functions through a hierarchy of professional managers and supervisors.  Generally, this will be businesses with between 20 and 500 employees.
  • Small Business: Is a for-profit enterprise with one or more owners in which the owner(s) personally supervises and manages all employees and directs all business functions. This generally, is going to be a business with from two (the owner and one employee) up to 20 employees all of whom report to a single boss, and that boss makes and implements all decisions directly with employees.
  • Self-employed:  Full and part-time self-employed make up 72% of all businesses based on tax filings.
Introducing the Fringe Economy
To complicate matters, there are the Fringe Businesses that make up an unknown percentage of all businesses.  A Fringe Business is any business that sells legal products and or services without the benefit or often the burden of licenses or permits and whose owner may or may not  pay taxes on income earned by the business.  This differs from a Black Market in that Black Market businesses sell illegal or illegally obtained products and services, again with licenses, permits or paying taxes.   We simply do not know how many of these businesses exist, however. . .

 The Fringe Economy of the U.S. generated an estimated $1 trillion in 2009.

In Robert Neuwirth’s 2011 book, Stealth of Nations, he estimates that worldwide the Fringe Economy that he labels “System D” is the second largest on the planet, generating some $10 trillion in sales in 2009.  That year, the largest economy was that of the U.S. at $14 trillion.  He estimates that the Fringe Economy of the U.S. generated $1 trillion in 2009, a number not included in the $14 trillion reported through government agencies.  That means that Fringe Businesses represent about 6.7% of our economic activity.

For more discussion on the Fringe Economy go to:  Introducing the Fringe Economy
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