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Subject: What is a "small" business? (poll included) rss

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Figuring this out is going to be similar to getting a final answer to whether God exists, same-sex marraige is a right, and the morality of abortion.

It's political.

So I'm reluctant to answer your poll. At the same time there is a whole list of "size" criteria by industry on the SBA web site. Except for the poltical (translation: money) aspects of defining small busines I think most people would view "small" as anywhere up to perhaps 100 employees. Over that and it's probably a mid-sized business.

I worked for Mercedes dealership for 7 years that had perhaps 70 employees yet generated $10+ million per year in revenue. That's where it gets tricky for the SBA people because the local Cut N' Curl with Barb doing perms and nails is probably the most common small business. Small doesn't always mean small income.
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Jorge Montero
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Gross revenue is not a very good estimate of business size on its own. We can't forget that different industries have different margins. For example, someone doing import/export can gross well over a million dollars a year and still be a small one man operation because the margin can be in the single digits, after which they pay fixed costs. A chain of stores doing well might get a 30% margin

My concept of large and small has more to do with number of employees and governance: Company governance must change as a business grows, and there's a relatively large jump in most industries at around the 50 employees or so, when a real corporate structure becomes necessary. This is still industry dependent, but it varies a lot less than margins.
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Quote:
What's the point in the designation at all when virtually everything counts as small, from the neighborhood, family run pizza joint to the franchiser w/5 Pizza Huts?


I think there is a point and it does revolve around money. Take the Mercedes dealership as an example - it's privately owned and therefore not "governed" by the rules large, publically-held, businesses are "supposed" to follow. So the owner and his son-in-law decided to go from Mercedes-Volvo up to Mercedes-Volvo-Range Rover and they had to go somewhere for the cash. That's where an agency like the SBA comes in. To set the criteria, vet the principles and business plan and then co-author the loan with local finance sources that want a piece of the action.

That dealership now also sells Porsche, Jaguar and Acura... although I reckon the Jags are collecting dust and the Porsches are marked down. Over the years the business has grown by retaining a "small" stature and being able to access credit.

The 97% figure isn't unreasonable to me at all. In fact, it makes sense. Drive down any street in any major city or even medium city and the overwhelming majority of businesses are small ones. Whether they have 1 or 100 people working, they're small in comparison to an AIG, GM or GE. Even in Boise where HP has a few thousand, Micron a few thousand more and several other major companies have headquarters or regional divisions, chances are good that 97 out of 100 people you meet on the street don't work for any of the big companies.
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Ken
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GAWD wrote:
What's the point in the designation at all when virtually everything counts as small, from the neighborhood, family run pizza joint to the franchiser w/5 Pizza Huts?


Would you prefer a designation of "small" that was fixed and didn't reflect differences between industries? If so, you'd end up with significantly limiting new businesses in many fields.

The SBA designations make sense because they reflect the capital required to make a small business in a given industry grow and succeed. Both your family run, single location restaurant and a franchisee with 5 locations will face similar challenges, right? And both are small compared to other businesses in their field (look at the size of some McDonalds and Burger King Franchisees, for example).

Providing the amount of "breathing room" that the SBA guidelines allows is actually critical. The most dangerous period for most businesses after getting successfully started is the transition from "small" to "mid-size." It's at that point that most businesses finally figure out they need more professional management, greater structure, and more strategic planning. It's usually at that point that the founder (if they're smart) starts being more of a visionary CEO that brings in other managers to execute that vision. And it's at that point that many businesses that were previously successful fail either due to lack of access to credit, overexpansion, or inability to sustain their momentum/quality/product.

So I'm fine with the definitions as they stand. An oil drilling company with $33.5 million in gross revenue is nothing compared to BP or Exxon. If we want them to have a shot at growing, they need the help just as much as Pop's Pizza down the street. And I want them to have a shot at growing - they're the ones that are likely to bring innovation to the market.
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Chad Ellis
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The first question is virtually meaningless, as has been pointed out. EBIT or EBITDA would be better measures.
 
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Your low-end numbers are too low. To me, a small business receives no more than $500,000 in income per year nor does it employ more than a dozen people. Otherwise, you'r at least a "medium" business.
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If the president of the company invites every employee over to his house for holiday dinner, its small.
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DWTripp wrote:
Whether they have 1 or 100 people working, they're small in comparison to an AIG, GM or GE.

I'm small in comparison to the mom in What's Eating Gilbert Grape, but that doesn't make me small compared to the world. I'm certainly at least medium sized.

No, you can't without being laughed at think that companies a little smaller than AIG, GM, or GE are "small businesses."

Using these sorts of rules, we can define "rich" people as anyone making at least 10,000 dollars per year. That way, almost everybody gets to be rich! Just like almost every business gets to be "small." Woo hoo.
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Geosphere wrote:
If the president of the company invites every employee over to his house for holiday dinner, its small.
Not if the president lives in a $25,000,000 20,000 square-foot house.
 
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Paul DeStefano
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Randy Cox wrote:
Geosphere wrote:
If the president of the company invites every employee over to his house for holiday dinner, its small.
Not if the president lives in a $25,000,000 20,000 square-foot house.


No, I think it still is.

Small companies have a certain feel and flow. If some dude with a house like that invites all his employees for dinner, it still feels like a small business.

Not usable as a metric by the Fed, but that's how I feel.
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GAWD wrote:
DWTripp wrote:
Figuring this out is going to be similar to getting a final answer to whether God exists, same-sex marraige is a right, and the morality of abortion.

It's political.

So I'm reluctant to answer your poll. At the same time there is a whole list of "size" criteria by industry on the SBA web site. Except for the poltical (translation: money) aspects of defining small busines I think most people would view "small" as anywhere up to perhaps 100 employees. Over that and it's probably a mid-sized business.

I worked for Mercedes dealership for 7 years that had perhaps 70 employees yet generated $10+ million per year in revenue. That's where it gets tricky for the SBA people because the local Cut N' Curl with Barb doing perms and nails is probably the most common small business. Small doesn't always mean small income.


Of course the poll was a ruse ...

The answer in both instances is "all of the above."

Here is the criteria you mentioned:

http://www.sba.gov/idc/groups/public/documents/sba_homepage/...

The problem, as I see it, is an inherent lack of definition in the sba requirements. Such that, essentially 100% (okay 99.7% is pretty damn close to 100%) of the business in the country are classified as small. This seems to strain the credibility of the definition in the first place.

I'm sorry but a business grossing upwards of 10 million doesn't strike me as "small" ... a business employing 500 people doesn't strike me as "small."

What this means is that business that really are small (like a game store) are lumped into a broader category w/businesses that are, frankly, out of their league.

What's the point in the designation at all when virtually everything counts as small, from the neighborhood, family run pizza joint to the franchiser w/5 Pizza Huts?


Don't knock franchises. Many times, they are the best form of small buisness to get into for people of middle to low income. When I was in the cult of Subway, one of the attractions was the very LOW start up costs, and reasonable low level of risk (for a restaurant- most non franchise restaurants fail in 16 months).

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Jorge Montero
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Franchises are interesting from the governance POV. They tend to have sole proprietors and all that. If you look at their balance sheets, they'd look quite similar to a normal small business. But, from the governance perspective, they are quite different: While the owner tends to be free to close the franchise if he wishes, he can be severely limited in the decisions that he can take. A certain product failing in his market? Tough luck. New idea that you want to use by yourself? I hope you are checking with the people above. Found a cheaper supplier for something? Better look at the fine print.

The owner can have so many obligations to the franchise that his power is basically down to hiring decisions: Most of the rest is off his hands, came in a form contract, and he can't even appeal to the courts for many issues, since the contracts come with arbitration clauses. Therefore, from the governance perspective, the franchisee is better modeled as an agent in the franchise than as a small business owner.
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GAWD wrote:
That said, certain business are, by their nature, not small. Like banks ... 175 Million in assets? Sheesh yeah right ... that's huge.


That'd be a pretty tiny bank.
 
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