- The SBA defines which companies are officially designated as small businesses.
- Your industry determines whether your business’s designation depends on its number of employees or its annual revenue.
- You can find your industry code in the U.S. Census Bureau’s NAICS publication.
- This article is for business owners who are trying to determine whether their organization is technically considered a small business.
You can call your company a small business, but if you don’t meet the SBA’s definition you could lose out on some opportunities. The SBA’s standards for small businesses are based on three factors: your company type, your average annual revenues and your number of employees. Is your business truly small? Read on to find out.
How to tell if you own a small business
To qualify as a small business, a company must fall within the size standard, or the largest size a business may be to remain classified as small, within its industry.
The U.S. Census Bureau provides a list of industry codes to help businesses determine their size designation, and the SBA maintains an extensive list of small business size standards with the maximum requirements to remain classified as a small business in each sector and subsector.
“The definition of ‘small business’ is dependent on which industry code a company is in,” said Molly Gimmel, CEO of Design to Delivery. “My company’s primary code is 541611. In that industry, a small business is defined as one with average revenues, based on the past three completed fiscal years, that are less than $16.5 million.”
Though size standards vary by industry, they are usually measured by the number of employees or average annual receipts. The current SBA business size standards include the following.
- Agriculture, forestry, fishing and hunting: Between $2 million and $30 million in average annual receipts, depending on your subsector.
- Mining, quarrying, and oil and gas extraction: No more than 250 to 1,500 employees, depending on your subsector. There are four sectors with annual revenue rather than employee limits, ranging from $18 million to $41.5 million.
- Utilities: No more than 250 to 1,000 employees, depending on your sector. There are three sectors with annual revenue limits instead, ranging from $26.5 million to $36 million.
- Construction: Between $16.5 and $39.5 million in average annual receipts.
- Manufacturing: No more than 500 to 1,500 employees, depending on your subsector.
- Wholesale trade: No more than 100 to 250 employees, depending on your subsector.
- Retail trade: No more than $8 to $41.5 million in average annual receipts, depending on your subsector. Other subsectors have defined employee maximums from 100 to 200.
- Transportation and warehousing: No more than 500 to 1,500 employees, depending on your subsector. Some subsectors have maximum average annual receipt limits ranging from $8 million to $41.5 million.
- Information: No more than 250 to 1,500 employees, depending on your subsector. The maximum average annual receipts ranges from $9.5 million to $41.5 million.
- Finance and insurance: No more than 1,500 employees for direct property and casualty insurance carriers, and a maximum of $13 million to $41.5 million in average annual receipts. Certain financial institutions instead qualify as small businesses if they have no more than $750 million in assets.
- Real estate, rental and leasing: No more than $8 million to $41.5 million in average annual receipts.
- Professional, scientific and technical services: No more than $8 million to $41.5 million in average annual receipts, or no more than 150 to 1,500 employees, depending on your subsector.
- Management of companies and enterprises: No more than $34 million in average annual receipts for offices of bank holding companies. Offices of other holding companies must earn no more than $40 million in average annual receipts.
- Administrative and support, waste management, and remediation services: No more than $7.5 million to $41.5 million in average annual receipts, depending on your subsector.
- Educational services: No more than $8 million to $41.5 million in average annual receipts, depending on your subsector.
- Healthcare and social assistance: No more than $7.5 million to $38.5 million in average annual receipts, depending on your subsector.
- Arts, entertainment and recreation: No more than $8 million to $41.5 million in average annual receipts, depending on your subsector.
- Accommodation and food services: No more than $8 million to $41.5 million in average annual receipts, depending on your subsector.
- Other services: No more than $7 million to $41.5 million in average annual receipts depending on your subsector.
Benefits of being classified as a small business
Business size classification isn’t frivolous. Being classified as a small business comes with certain benefits, so it’s important to know if your business qualifies. Here are some of the benefits small businesses can enjoy.
- Loans: Rather than lending money directly to businesses, the SBA works with lenders and essentially acts as a co-signer for small businesses seeking loans. This provides lenders a stronger guarantee that they’ll be paid back, which gives small businesses access to better rates than they might receive on their own.
- Government contracts: The SBA offers several government contracts for small businesses, which can help them compete with larger corporations in their industry.
- Research grants: Small businesses are eligible for SBIR (Small Business and Innovation Research) government grants. These grants encourage small business owners to explore technology and commercialization opportunities.
In addition to these tangible benefits, small businesses tend to be more flexible and adaptable than large companies, allowing them to pivot as needed amidst changing economic conditions. Moreover, small businesses tend to be innovative laboratories that experiment with new ideas – some of which may disrupt entire industries.
How do the industry codes and definitions work?
The SBA bases its definitions on categories set by the North American Industry Classification System (NAICS). Various federal agencies developed this system. It’s used in statistical analysis and the classification of businesses for revenue, tax and other purposes.
What are NAICS codes?
The NAICS divides businesses into industries and further into subclassifications and even further subclassifications. For example, sectors 44 and 45 are retail trade businesses. Furniture and home furnishings stores are a subclass of sector 44 and denoted by codes that start with 442. That subclass is further divided into 4421 (furniture stores) and 4422 (home furnishings stores).
But even those classifications are further divided. Under furniture stores, for example, you might see the following codes:
- 442210 – Floor covering stores
- 442291 – Window treatment stores
- 442299 – All other home furnishings stores
From just this snippet of codes taken from the 2022 NAICS, you can see how complicated it can be to determine which code applies to your business – and if your company operates multiple lines of business, you may need to select more than one code.
The system operates on a self-assignment basis, but you can get help from the Census Bureau in choosing the right code by emailing NAICS@census.gov or calling 1-888-756-2427.
How do NAICS codes help you understand whether you’re a small business?
The SBA provides a table of small business size standards. It lists every potential NAICS code, with definitions for a small business in that industry. Depending on the industry, the defining factor is either revenue or number of employees.
For example, businesses that fall under code 424110 (printing and writing paper merchant wholesalers) are considered small businesses if they have 225 or fewer employees. But fish and seafood merchant wholesalers (424460) are no longer considered small businesses once they have more than 100 full-time employees.
Sometimes the standards can seem contradictory and frustrating. Consider that new car dealers (441110) are small businesses as long as they have 200 or fewer full-time employees, but used car dealers (441120) are not defined by their number of employees. Rather, they are considered small businesses if their average annual revenues are $27 million or less.
Some revenue thresholds are much lower than others. Cotton farms, beef cattle ranches and poultry hatcheries are considered small businesses only if their annual revenues are under $2.75 million, $2.25 million and $3.5 million, respectively. However, companies that engage in chicken egg production can have revenues as high as $16.5 million and still be considered small businesses.
Do these parameters ever change?
The NAICS is updated periodically. The most recent update to the NAICS was in 2022. The SBA also updates its definitions from time to time. The last update to its table of size standards was published on July 14, 2022.
Can you fall back into being a small business?
Periodic updates from the SBA take factors such as inflation into account. The SBA understands that earning $1 million 15 years ago is different from earning $1 million today. If you grew out of a small business designation in prior years, it’s worth checking the definitions for your NAICS classification anytime there’s an SBA update. You may find that you now qualify as a small business again, even if you have experienced stable revenue or slight growth.
Sizing up your business
If your business has grown over time, it could still qualify as a small business based on SBA definitions. In that case, you have access to certain government benefits that are off-limits to larger companies. Check the SBA’s standards and the Census Bureau’s NAICS codes every few months to keep your status up to date and take advantage of any resources available.
Source interviews were conducted for a previous version of this article.