Small Business Definitions

Are you defined as a small business, SOHO, a small small business, an SME, SMB, SMME, mid-sized enterprise or what? You can be forgiven for not knowing exactly where you slot in.

What prompted this research is the fact that many CRM products that are ostensibly designed for SME’s are priced such that they are largely unaffordable by the very markets for which they were intended – unless they take the ‘S’ out of the SME.

Have you ever gone to download a trial version of what seems a suitable small business CRM (Customer Relationship Management) software application, or any application for that matter that was pitched at small businesses? You fill in their form as required, but when you get to the drop-down section asking you your company turnover and it STARTS from $50 million, you get the feeling that you are at the wrong place. Your little company only turns over $5 million pa, so the doubt creeps in – maybe this product is to heavy-duty and expensive for you. You might even feel that you have been misled.

The following definitions of small businesses from around the world might help you decide where yours slots in.


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SMALL BUSINESS DEFINITIONS

Firstly, there are no universally accepted small business definitions. What is regarded in the US as a small business by definition, would often be regarded as a medium sized business elsewhere in the world. Small business definitions differ vastly in smaller countries like New Zealand and South Africa to their bigger counterparts in the US and the EU.

There are no single small business definitions mainly due to the wide diversity of these businesses. One of the defining characteristics of the SMB market is its diversity; there are no neat, “one-size-fits-all” solutions to the business and administrative problems faced by SMBs.

The SMB market may also be defined in terms of vertical markets (retail, distribution, manufacturing, etc) and horizontal markets (by size, hardware and software installed, services used, IT staff size, etc).

There are an estimated 15 million SMBs worldwide, of which only perhaps 2% have implemented CRM software. That makes this market the “Holy Grail to go after,” stated Bruce Cleveland, senior vice president of SMB and OnDemand at Siebel, at a news conference.

Siebel, however, seems to simply pigeonhole SME’s as all companies with less than $500 million in revenue. Not $50 million or even $5 million! They have also identified that SME’s often prefer to do business at a local level, with a vendor in their geographical region. They have set up a dedicated SME division accordingly.

This is potentially good news for us small businesses, as, firstly, more and more CRM products are going to come onstream specifically designed for smaller businesses. Some of the big CRM software developers at first thought they could simply water down their mid and enterprise market CRM offerings by ‘greying out’ some features and removing others. This did not work, so many are now actually programming CRM software solutions from the ground up for the small business.

Small Business Definitions according to SBA.gov, the US Administration for Small Business.

Interestingly, The Small Business Act states that a small business concern is “one that is independently owned and operated and which is not dominant in its field of operation.”

According to the SBA, a Small Business is defined as one that:

  • is organized for profit;
  • has a place of business in the United States;
  • makes a significant contribution to the U.S. economy by paying taxes or using American products, materials or labor; and,
  • does not exceed the numerical size standard for its industry.
  • the business may be a sole proprietorship, partnership, corporation, or any other legal form.

There is an SBA small business size standard for every private sector industry in the U.S. Economy. The SBA uses the North American Industry Classification System (NAICS) to identify the industries.

Size Standards (usually stated in number of employees or average annual receipts) represent the largest size that a business (including its subsidiaries and affiliates) may be to remain classified as a small business for SBA’s programs and for Federal contracting programs.

UK Small Business Definitions.

The best description of the key characteristics of a small business remains that used by the Bolton Committee in its 1971 Report on Small Firms. This stated that a small firm is an independent business, managed by its owner or part-owners and having a small market share.

The Bolton Report also adopts a number of different statistical definitions. It recognised that size is relevant to sector – i.e. a firm of a given size could be small in relation to one sector where the market is large and there are many competitors; whereas a firm of similar proportions could be considered large in another sector with fewer players and/or generally smaller firms within it.

In broad terms, the SMB (Small, Medium Businesses) market can be defined as businesses employing between 20 and 499 employees. However, in South Africa, SMBs are also associated with small office, home office (SoHo) organisations.

Similarly, it recognised that it may be more appropriate to define size by the number of employees in some sectors but more appropriate to use turnover in others. Across Government, it is most usual to measure size according to numbers of full-time employees or their equivalent.

Section 248 of the Companies Act of 1985 states that a company is “small” if it satisfies at least two of the following criteria:

  • a turnover of not more than £2.8 million;
  • a balance sheet total of not more than £1.4 million;
  • not more than 50 employees
  • A medium sized company must satisfy at least two of the following criteria:
  • a turnover of not more than £11.2 million;
  • a balance sheet total of not more than £5.6 million;
  • not more than 250 employees

For statistical purposes, the UK Department of Trade and Industry applies the following definitions:

  • micro firm: 0 – 9 employees
  • small firm: 0 – 49 employees (includes micro)
  • medium firm: 50 – 249 employees
  • large firm: over 250 employees

However, in practice, schemes which are nominally targeted at small firms adopt a variety of working definitions depending on their particular objectives.

In February 1996, the European Commission adopted a communication setting out a single definition of SMEs. The Commission intends to apply this across Community programmes and proposals.

The communication explains that existing SME definitions in Community programmes may continue to be used until 31 December 1997. After that date, the single definition must be used. The single definition must be used if programmes are modified in the meantime.

A small business may be defined as a business with a small number of employees. The legal definition of “small” often varies by country and industry, but is generally under 100 employees. These businesses are normally privately owned corporations, partnerships, or sole proprietorships.

Small businesses are common in many countries, depending on the economic system in operation. Typical examples include: small shops, hairdressers, lawyers, solicitors, accountants, restaurants, guest houses, photographers and so on.

Small Business definitions in New Zealand

In New Zealand they tend to be defined as businesses that employ fewer than 20 staff.

Some interesting recent SME statistics include:

In New Zealand 96.8% of enterprises employ 19 or fewer Full Time Employees (FTEs)
86% of New Zealand enterprises employ five or fewer FTEs
The number of SMEs increased 4.9% in 2003
SMEs accounted for 42.3% of all FTEs and 38.1% of the economy’s output in 2003
Between 1997 and 2002 new firms employing 0-5 FTEs created 180,370 new jobs
The proportion of SMEs in New Zealand is similar to a number of other OECD countries, although SMEs account for a higher proportion of employment in New Zealand relative to other countries.

If you can provide input on YOUR countries small business definitions, please let me know!