Definition of a Small Business

The Small Business Administration (SBA) defines a small business based on a maximum of gross revenue. Here are the thresholds for the kinds of service firms that usually possess goodwill:

Another criterion often used to determine whether a firm is small is the number of employees. Usually a firm with less than 50 to 75 full time employees is considered small.

Rather than applying arbitrary cutoffs an operational definition is best. A firm is small if the owner’s full time day to day participation in the management of the firm is a virtual necessity for the firm’s survival. Most small firms do not operate with sufficient resources to hire independent management and provide the segregation of duties that can assure the safeguarding of firm assets and reputation. A full time owner employee is required to assure the viability of the business.

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