Ten years ago when I started my newsletter, Big Ideas for Small Business®, there were millions of small businesses but little media attention was given to them. Today, small business is big news.
- The Small Business Jobs Act of 2010, signed into law on September 27, 2010, was enacted to provide help to small business (although the reality is that many mid-size and large corporations can benefit from some of the provisions in the Act).
- Just about every candidate for office today is touting the importance of small business to our economy and courting the small business vote.
What is “small business”?
What does small business want? It’s virtually impossible to say because there is no single definition of what constitutes a small business. What matters to a company with 200 employees may be very different from what matters to a mom-and-pop operation with only family members on the payroll.
The definition of small business varies considerably:
Small Business Administration — generally 500 or fewer employees.
IRS — different definitions based on gross receipts, assets, and/or number of employees ranging from 25 employees (for the tax credit for small employer health insurance premiums) to 500 employees (for the DB(k) retirement plan).
Department of Labor — from 2 employees and up, depending on the federal employment law (e.g., with 20 or more employees for COBRA; 50 or more employees for the Family and Medical Leave Act).
How many small businesses are there?
This is impossible to say because it depends on what you count as a small business.
- SBA’s Office of Advocacy estimates 27.5 million in 2009.
- SCORE says 29.6 million in 200
- Census Bureau estimates 6 million firms with employees and 21.4 million without employees for 2009.
- IRS shows 22.6 million nonfarm sole proprietors filed Schedule C in 2008.
There are also many small businesses that are not counted by anyone. They operate in the underground economy, buying and selling but not paying taxes. Some of these businesses are engaged in illegal activities, but the vast majority of underground businesses are simply flying under the radar.
The importance of small business to the economy
According to the latest fact sheet from the SBA’s Office of Advocacy, here are some key facts:
- Employ half of all private sector employees.
- Pay 44% of total U.S. private payroll.
- Generated 65% of net new jobs over the past 17 years.
- Create more than half of the nonfarm private GDP.
- Hire 43% of high tech workers (scientists, engineers, computer programmers, and others).
- Are 52% home-based and 2% franchises.
- Made up 97.5% of all identified exporters and produced 31% of export value in FY 2008 (the government’s fiscal year ending September 30, 2008).
- Produce 13 times more patents per employee than large firms.
The small business conversation
Okay, so small business is important to the economy. But what needs to be done to help small business? The answer depends on which small business you ask.
Let’s work to get a consistent definition so that the needs of companies of a particular size can be met. Perhaps we need several categories, such as micro-businesses (with up to 10 employees), nonemployee firms (freelancers and independent contractors), and a realistic “small” business size (say 100 employees).