There are different ways to measure businesses but the two methods used by the Small Business Administration are revenue categories and the number of employees. Though the methods of measuring small businesses are remaining the same, the revenue amounts are being changed by the SBA. Businesses that were previously considered to be large will now fit into the category of small businesses when the changes are put into place.
The changes were put into place to account for the inflation that has occurred since the last inflation adjustment to revenue sizes in 2008 and are effective on July 14, 2014. Revenue caps are determined for each industry.
The Small Business Administration estimates that more than 8,400 businesses will gain small business status when the adjustments are effective. This means that these new small businesses will become eligible for SBA’s financial and federal government procurement programs.
A report by the Federal Reserve Bank of San Francisco says that these revenue categories group businesses together that have similar needs so that a more accurate picture can be painted of the needs of businesses within various industries. Some industries require a large labor force to be successful, while other industries can thrive with only a few employees. This difference makes employee size an inaccurate measure of what qualifies the industry as a small business.
This topic was covered in a previous blog post about how the most useful and practical way to measure small businesses is to use revenue categories, rather than looking at the amount of employees.
An article in the Washington Post pointed out that a travel agency or a locksmith could have annual revenue of less than $20.5 million, an increase from the previous $19 million. Up to $38.5 million a year, however, was permitted for a family clothing store or software publisher. Both situations would qualify for small business support despite the large discrepancy.
Some industries are dominated by multibillion-dollar corporations and the update is aimed to help smaller businesses compete. In the process of trying to help these businesses, it has brought attention to how large the span is within the definition of “small businesses.”
July 14, 2014 is on the horizon and the changes to small business are rapidly approaching.