Classifying Your Small Business
All businesses have a set of goals they are striving to achieve. From the largest conglomerates to the smallest of mom-and-pop grocers, every for-profit business is trying to earn a living by providing the public with a good or service. And, while the size difference between a conglomerate and small business may seem obvious, classifying those businesses is actually very important to their operations. Here, we discuss the classification procedure and what it means to you.
Why Are Small Businesses Classified?
Classifying your business by the size standards set by the United States Small Business Administration (SBA) says a great deal about its operation. It tells other businesses, banks, and coordinators where your business stands in the industry, how many people it employs, and what kind of contribution it makes to society.
Classifying as a small business also tells the government if you are eligible to apply for government contracts, to file small business taxes, and to apply for financial aid. You may be eligible for special grants and loans, federal benefits, or tax exemptions based on your classification.
What Makes a Small Business Small?
Businesses are classified by size. Specifically, small businesses are classified by size of annual profit and/or by number of employees. These measurements are called “size standards,” and the SBA varies them by industry. You can use the North American Industrial Classification System (NAICS) to pinpoint the correct industry for your small business.
What Classifies a Small Business Concern?
When dealing with the technical terms of classifying businesses, the words “concern” or “business concern” often appear. A business concern is defined as a commercial or industrial enterprise and the people who constitute it. To qualify as a small business concern, the Small Business Act states that your business must be:
- Independently Owned and Operated
- Not Dominant in its Industry Nationwide
- Organized for Profit
- Located in the United States
- Primarily Focused on Operations in the United States
- Contributing to the U.S. Economy Through Taxes
- Using American Products, Materials, or Labor
The only exceptions to these rules are small agricultural cooperatives that need to follow the SBA guidelines for agricultural business concerns.
How Do You Officially Classify Your Small Business?
According to the SBA, there is no “official” certification process for classifying your business as small.* Simply visit the SBA website, access the official NAICS size standard worksheet, and find out if your business meets the requirements for classification as a small business.
* Source: http://www.sba.gov/mostrequesteditems/CON_FAQ8.html
Want to know more about small business? We can help. Read about the basics of Effectively Hiring Employees in our next section.
