A question that comes up frequently is “what’s a small business?” The SBA defines a small business as one with up to 500 employees (even more for some industries), which is clearly not what most people envision as being “small.” Nonetheless, being a small business has its advantages. But obtaining these benefits depends on whether you qualify as “small” for a particular one.
Special marketing tools for small business
Small Business Saturday for 2023 is behind us, but there’s considerable support for “shopping small.” A Gallup poll last year found that 68% of Americans trust small business, way more than they trust large tech companies, financial institutions, and other big businesses. A Gallop poll this year found a whopping 85% reported that small businesses had a positive impact on people’s lives, compared with 42% saying the same thing about large businesses. So, standing out as a small business can be a considerable marketing edge. Ways to stand out:
- Amazon small business badge. If you are registered with the Brand Registry or participate in the Handmade Program of Amazon, you can display a special badge to denote “small business” if you have fewer than 100 employees and less than $50 million in revenue.
- Google small business label. Google allows small merchants to add a label (a little store with an awning) if it determines that your company isn’t a franchise and has annual revenue of less than $10 million. Do this through Google’s Merchant Center or Business Profile accounts. The label is also for those using Google & YouTube app on Shopify. Google automatically adds the label to some merchants’ listings based on their product offering, number of locations, and web traffic.
Special tax breaks for small businesses
There are more than 3 dozen federal tax breaks that can only be used by small businesses. You can find many listed in the IRS’s Tax Guide for Small Businesses, which is only for those filing Schedule C; all of them are covered in my book J.K. Lasser’s Small Business Taxes 2024: Your Complete Guide to a Better Bottom Line.
As you review the various breaks, you’ll see that many different definitions of “small business” are used. Some are based on the number of employees, some on revenue (gross receipts), and some on assets. You can be a small business for some tax breaks, while missing the mark for others. For example, you can use a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) only if you have fewer than 50 employees, but you can still claim a credit for setting up a retirement plan as long as you don’t have more than 100 employees. Talk to you CPA or other tax adviser to see which small business tax breaks you can qualify for.
Special government contracting opportunities for small business
Federal contracting amounted to about $694 billion in the government’s fiscal year 2022. The federal government has certain set-asides to ensure that contracts go to small businesses. The definition of small businesses follows SBA rules.
There are competitive set-asides, which result when 2 or more small businesses could perform the work or provide the products being purchased, which requires competitive bidding. The General Services Administration says that every purchase between $10,000 and $250,000 is automatically set aside as a competitive set-aside. There are also sole-source set-asides, which can be issued without competitive bidding.
Set-asides for small businesses are 23% of all federal contracts; it’s not a requirement but a goal. In the government’s fiscal year 2022, federal contracts awarded to small businesses reached 26.5% ($162.9 billion). There are specific set-asides for:
- Participants in the 8(a) business development program (disadvantaged businesses): 5% (actual awards in FY 2022 was 11%)
- HUBZone-certified businesses: 3% (actual awards in FY 2022 was below the goal)
- Certified women-owned businesses: 5% (actual awards in FY 2022 was 4.6%, or slightly below the goal)
- Service-disabled veteran-owned businesses: 3% (actual awards in FY 2022 was 4.6%)
Final thought
“If you think you’re too small to make a difference…try sleeping with a mosquito in the room.” ~ Dalai Lama
It’s clear that being a small business has its advantages. The ones covered here are not all of them, but that’s a subject for another blog.
