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Springfield, MO

Opinion: Is my company really a small business?

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National Small Business Week ran through May 6 this year, and if you own or operate one, hopefully you took the time to celebrate. It’s not easy running a small business, so if the lights are on and the bills are paid, you certainly deserve the recognition.

It’s probably a good time to see if you really should be celebrating Small Business Week. Many business owners likely assume their enterprise is a small business, but is it really? It’s a relatively easy question to answer – if you know where to look.

For our definition we’ll look at perhaps the most important indicator: Is your business eligible for a loan from the U.S. Small Business Administration? After all, many small businesses will need a loan at some point.

According to the SBA, a small business for most industries is defined in terms of the average number of employees over the past 12 months or the average annual receipts over the past three years. In addition, the SBA defines a small business with these five characteristics:

• organized for profit;

• has a place of business in the United States;

•operates primarily within the United States or makes a significant contribution to the U.S. economy;

• independently owned and operated; and

• not dominant in its field on a national basis.

The SBA has created a detailed Table of Small Business Size Standards to help businesses determine whether they are in fact a small business. The table matches a business in its North American Industry Classification System to either the maximum annual receipts or the average employment. Those factors vary by industry.

For instance, a soybean farmer may earn up to $750,000 in receipts annually and still qualify as a small business. The same is true for nursery and tree production as well as hay farming and beef cattle ranching.

In the construction industry, new single-family and multifamily housing construction have a maximum revenue cap of $36.5 million annually.

For retailers, family clothing stores with receipts under $38.5 million qualify as small. Florists under $7.5 million are also considered small businesses as well as jewelry stores under $15 million. For professionals, insurance agencies and brokerages with annual receipts under $7.5 million are deemed small, while law offices earning less than $11 million and dental offices earning less than $7.5 million qualify.

Most manufacturing businesses are measured by their average number of employees over the past 12 months. For flat glass manufacturing, it’s 1,000 employees or less, while machine tool manufacturing is capped at 500. For the most part, these industries fall between the 500-1,500 employee range.

The SBA says the small business may be a sole proprietorship, partnership, corporation or any other legal form. As long as its annual receipts or average employees fall beneath the threshold, it can likely qualify as a truly defined small business.

So why does it really matter if your business is classified as small or not? Apart from SBA financing, federal, state and local governments offer businesses the opportunity to contract with the government. Many agencies require some percentage of their procurements set aside for small businesses, according to the SBA’s website. Once you’ve classified your company based on the established size standards for your industry, you’re ready to begin registering to do business with governmental agencies.

Two out of three new businesses created every year are small businesses and there are certainly advantages to knowing whether you truly meet the definition.

Stephanie Murphy is an associate vice president and small-business banking officer with Guaranty Bank. She can be reached at smurphy@gbankmo.com.

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