What is small business, its definition and characteristics?

Any concept of small business is dependent on comparisons with other business. Sales, number of employees, assets, net worth, market share, and relationship to competitors have all been used to make this determination. There are probably as many ways to define small business as there are people wanting to do.

The Small Business Administration says that a small business is one that is independently owned and operated, is not dominant in its field, and meets a variety of size standards. These size standards vary.

Some standards apply only for loans programs. The Small Business Administration is currently developing a single size standard that can be used for all of its programs.

From still another perspective, management characteristics are what set small business apart from larger ones.

Probably the most workable concept of a small business is the one suggested some years ago by the Committee for Economic Development.

To qualify as a small firm under its definition, a business must have had at least two of the following characteristics: 

1. independent management with the managers often owning the firm; 

2. the capital contribution coming from a limited number of individuals - perhaps only one; 

3. the firm operating in a local area and; 

4. the firm representing a small part of the overall industry.

In general, a small business has the following characteristics:

• Independently owned
• Independently operated and managed
• Only a minor factor in its industry
• Fewer than 400 employees
• Limited capital sources