How to Determine the Size of a Small Business: Counting the Number of Employees
As an entrepreneur, you may have heard the phrase “small business,” but do you know how to determine whether your business truly falls into this category? The answer lies in counting the number of employees. This blog article will guide you through the process of determining your business size, its significance, and why it matters if you get it wrong.
Why Size Matters
The size of your business is crucial because it determines the regulatory requirements that your company needs to fulfil, the level of support, and the type of financing available to you. The Small Business Administration (SBA) classifies companies based on the number of employees or the average annual receipts of their business. Knowing your business’ size can help create effective strategies, management, and compliance with tax regulations.
How to Count Your Employees
Counting the number of employees is a straightforward process. You need to identify anyone working for your business and hours worked per week. Full-time employees are counted as one employee, while part-time employees’ hours worked are added up, divided by 2,080, then rounded up to the nearest whole number. Freelancers, contractors, seasonal workers, and interns who work 120 days or more require the same calculation.
Size Categories
Understanding business size categories will help you determine your business size. According to the SBA, the following size categories are based on the number of employees:
1. Microbusiness: Fewer than ten employees
2. Small business: Less than 500 employees, manufacturing and mining companies, less than 200 employees, retail and service businesses.
3. Medium-sized business: Between 501 and 1,000 employees, manufacturing, mining, retail and service businesses.
Small Business Status Determination
Once you have identified your business size, it’s important to reassess size often and to distinguish yourself as a small business when applying for licenses, permits, regulations, and grants. Lying to drop below the legal employee count requirements can result in hefty fines, expectations, and losses. Qualifying as a small business often has advantages such as set-asides in federal contracts, certification, and other benefits.
Conclusion
Determining the size of your business is crucial because it determines your category, regulatory requirements, eligibility for grants, and tax regulations. Counting employees is a straightforward process that helps place your business in its correct size category and allows owners to take full advantage of the benefits. Keep your business size updated, and check if it’s eligible for small business classification benefits.
