• Understand what is considered a small business
• Understand how small businesses contribute to economic growth

Entrepreneurs Drive the Economy

Large financial institutions and corporations are often considered to be the engines of our economy, but big business is only half of the story—literally. While the majority of small businesses don’t operate at scale (roughly 70 percent have fewer than 100 employees), their cumulative economic impact is significant. Through inventions and innovations, entrepreneurs also shape how and how well we communicate, learn, live, and experience life. Entrepreneurship matters not only because of the employment and productivity impact, but because small businesses contribute to the resilience of their communities and the nation, and, by extension, to stability globally.

In this module, we’ll explore small businesses and entrepreneurship, provide perspective on the opportunities and the risks, discuss common motivations and traits, and outline the steps involved in developing a business plan.

What Is a Small Business?

The U.S. Small Business Administration (SBA) is the go-to source for all things small business—including the statutory definition of a small business. Classification as a small business is determined by size standards—either number of employees or revenue—based on industry. Specifically, size standards are based on the 6-digit “NAICS” or North American Industry Classification System code that describes a business’ economic activity. Note that the form of ownership or legal structure of a business is not a factor in determining whether an enterprise is a small business.

For manufacturing businesses, the standard is generally the number of employees, with maximums ranging from 500 to 1,500. For example, the employee maximum for a commercial bakery is 1,000, and for a business brewery, it’s 1,250. For non-manufacturing industries—think retailers and wholesalers—the standard is based on a three-year average of annual revenue, with the maximum ranging from $9 million for florists to $40 million for electronics and appliance retailers. Financial institutions are an exception to the employee or revenue rule; commercial banks, savings institutions, and credit unions are subject to a $550 million asset limitation.

Clearly, small is relative!^[1] Even after your business grows and expands, it may still be considered a small business by these standards.

Another determination option is to use the SBA’s interactive Size Standards Tool. This tool is designed to answer the question, “Are you a small business eligible for government contracting?” The tool provides a determination of either Yes (“you may be”) or No, with the relevant small business size standard. To use this tool, you need to know your NAICS code or codes (multiple selections allowed). You can use the search tool on the census.gov site to determine the NAICS code(s) associated with your primary business activity.

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