recent
Hot News

SMALL BUSINESS DEFINED



SMALL BUSINESS DEFINED
The term “small business” may be interpreted in a number of different ways.  There is, in fact, no consistency in defining the term.  Indeed, within a specific interpretation of small business there exists a variety of definitions.  The following paragraphs provide some perspectives on definitions of the term.

With a focus on decision making the Australian Wiltshire Committee developed the following definition:
“…a business in which one or two persons are required to make all the critical management decisions.”  Wiltshire Committee (1971:7)

Other definitions have been related to financial aspects.  These measures include total assets; net worth; total value of products; annual sales; or annual revenues.  Unfortunately, when these measures are used there is no consistency in the threshold amounts for an interpretation of what constitutes a small business.  Industry Canada (2010) has outlined more alternative definitions.  The Canadian Bankers Association defines a small business via their loan authorization threshold of $250,000.  The Export Development Corporation suggests a small business would have export sales of less the $1 Million.  Unfortunately, again, not all small businesses require loans or export their products.  Further, these measures are difficult to obtain.  Many small businesses are privately held and therefore, are not required to report such information.  Also, many small business managers are not prepared to divulge this information (even if it was available internally) because of the potential impact on their competitive environment.  Further, recent research has determined that small business managers tend to rely more on informal sources of competitive information rather than on the above statistical measures. (Halabi et al, 2010).

Thus, the term small business tends to be defined based upon the number of employees (Longnecker et al, 1997).  This measure is readily available due to the required reporting rules established by government agencies regulating payroll systems and the determination of income tax deductions.  Most jurisdictions require the remittance of employee salary payment information along with income tax data.

In Canada the definition of small business depends upon the industry (Industry Canada, 2010).  In the manufacturing sector a small business will have 100 or fewer employees, while in the service sector 50 or fewer employees will be used to define a small business.  Medium sized businesses will employ fewer than 500 employees regardless of industry.

The European Parliament (2002) uses a range of numbers of employees to define different categories of businesses.  So, a micro business has 0 – 10 employees.  A small business will have 50 or fewer employees.  Medium sized businesses will consist of up to 250 employees.  There is no differentiation based upon the type of industry.

Finally, in the United States a small business will have fewer than 500 employees (Michma & Bednarz, 2006).  Again, in the United States there is no differentiation based upon the type of industry.

The variety of small business definitions, even within the measure of number of employees, has lead researchers to take a contingency approach.  For each project the definition that may be used could be the one generally accepted in the geographic location of the investigation as outlined above.  While this approach will suffice for an individual project it becomes difficult to compare the results of international projects when different interpretations of measures have been used.

google-playkhamsatmostaqltradent