What Is Considered a Small Business? Definition, Criteria & Benefits

What Is Considered a Small Business?

When we imagine a small business, we might picture a quick-witted entrepreneur hooked up to a cellphone, maybe a small team of highly skilled laborers, or a tight-knit crew running an independent pizza joint. In reality, the classification is broader than you might think.

The official definition of a small business varies worldwide. Still, they tend to be privately owned corporations, partnerships, or sole proprietorships, smaller than large corporations in terms of their workforce and/or annual revenue.

In the US, the Small Business Administration (SBA)—the part of the United States government that supports small businesses—defines a small business as having fewer than 500 employees in manufacturing sectors and less than $7.5 million in annual receipts for most non-manufacturing companies. Small businesses are expected to be independently owned and not dominant within their field of operation.

For instance, a local roofing company with 20 employees and $4M in revenue would qualify. So, as you see, that could cover a lot of businesses — and it does! 

There are a few exceptions, though. That’s why the SBA has set small business size standards on an industry-by-industry basis, so you can be crystal clear on whether your company can be classed as a small business or not.

What Qualifies as a Small Business?

The SBA sets out detailed size standards on an industry-by-industry basis so you can easily determine if your business qualifies. 

Here are just a few of the larger industries and how their SBA classification is calculated: 

• Agriculture, forestry, fishing, and hunting: You’re allowed a maximum of $750,000 in average annual receipts in these industries. 
• Utilities: You can have up to 1,000 employees if you’re in electric power and natural gas distribution, but only up to 250 employees are allowed for renewable electric power generation subsectors. 
• Manufacturing: This category varies from 500 to 1,500 employees, depending on your subsector. 
• Retail trade: Retailers have a limit of between $7.5 and $38.5 million in annual receipts. If your average yearly revenue falls between these figures, it’s wise to look up the specific limit for your subsector. 
• Transportation and warehousing: You’re allowed a maximum of between 500 and 1,500 employees, depending on your subsector. 
• Professional, scientific and technical services: Your maximum permitted revenue falls between $7.5 million and $20.5 million in average annual receipts or no more than 1,000 to 1,500 employees, depending on the subsector. 
• Accommodation and food services: You’re allowed no more than $7.5 million to $38.5 million in average annual receipts, depending on your subsector. 

For the most current details, always refer to the SBA’s Table of Size Standards.

Still stuck? The SBA has also made this handy tool to help you figure out if your company qualifies. 

Why Would I Want To Be Classed as a Small Business Anyway?

The SBA wants to help small businesses do well. So, if you qualify as one, you can access additional support. For the US government, it makes total sense to give the little guys a bit more help — it boosts GDP and helps keep the economy healthy and growing. 

Here are some of the main benefits:

• Access to capital: Greater access to SBA loan programs to help you develop and succeed.
• Federal contracting opportunities: Programs designed to give small businesses a leg up when competing against larger enterprises.
• Business counseling and training: Free or low-cost services to help you refine your business planning, marketing, and management strategies.
• Additional support: Whether you’re pitching for a government contract or looking to expand, SBA resources can help level the playing field.

Of course, as the small business definition is pretty broad, a company with 500 employees can potentially access the same support as a business with just five people. 

You could argue that, if you’re a very small guy, the SBA doesn’t do quite so much to help you compete with other “less small” businesses! It’s still great that there are plenty of resources out there for you to access and help you make your business a success, though.

How Many Employees Does a Small Business Have?

The employee count that qualifies a business as “small” isn’t one-size-fits-all either. Logically, it depends on your industry:

Manufacturing & Mining: Some subsectors allow anywhere from 500 up to 1,500 employees.

Utilities:

• Traditional electric power and natural gas distribution businesses can have up to 1,000 employees, while renewable energy operations might be capped at 250.

Other Industries:

• For non-manufacturing sectors, size is more often determined by revenue thresholds rather than employee numbers.
  

These guidelines are made in such a way that the classification should reflect the unique dynamics of each industry.

Useful Terms To Learn When Figuring Out if Your Company Is Classed as Small Business

If you’re navigating the SBA classifications, here are a few terms you might need to know: 

Affiliates 

If another company has power within your business, they may be classed as an affiliate. Affiliates generally have a stake in your business of 50% or more, but it can be less sometimes too (helpful, we know!).  

Your affiliates’ employee numbers and receipts must be counted along with your own when you’re working out if you’re eligible for small business classification. You can find out if your company is classed as having an affiliate here.

Annual Receipts 

Part of calculating whether you qualify as a small business is working out your average annual revenue or “annual receipts.” This is your total income (or gross income), plus the cost of goods sold. These numbers are averaged out to calculate whether you fit the criteria for a small business. You should be able to find these figures on your tax return from the IRS.

Employee Calculation 

This is the way the SBA decides how many employees you have working in your business. You’ll need to include all the people you’ve employed for each pay period over your business’s latest 12 calendar months. That’s everyone from temporary staff right up to full-time employees —all should be counted regardless of hours worked. Figuring out your average number of employees over this period is your employee calculation. 

NAICS Code 

The North American Industry Classification System (NAICS) helps the government keep an overview of the various industries currently operating in the United States. A NAICS code is assigned to each sector. As a business owner, you pick the one that describes your primary business best. For example, a media company will have a different NAICS code to a utility firm. If your company deals with more than one type of business? No problem. You’re allowed to use more than one NAICS code if you need to. 

The SBA’s small business classification system uses NAICS codes to help you determine whether your particular business can be classified as a small business within your industry. 

When It Comes To Business, Small is Beautiful

Now you know the jargon, you’ve got an idea of the criteria, and you know what’s in it for you — it’s time to embrace your minor business status! There’s so much support out there to help you grow and flourish.  

Being small and nimble means you have some serious advantages over the big guys, too: you have lower overheads, you can move more quickly and your customers will love that you can keep it accurate. 

At Olly Olly, we love helping small businesses get started and succeed online. And, of course, this includes getting found on social media. Need help on that front? Check out our ultimate guide: Stand Out, Connect, and Convert: Your Playbook for Small Business Success on Social Media in 2025. 

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