What's the Difference Between a Micro, Small, and Medium Business?

You may have heard the terms “micro-business,” “SMB,” or “mid-sized business” used interchangeably to refer to any business smaller than a multinational corporation. However, these terms describe very different kinds of organizations, each with its own specifications and legal status, and the way we classify businesses in the U.S. is important to understand when building a business of any size.

Though the size of your team is a common factor in determining your business’s size classification, it’s not the only factor. Number of employees, annual receipts, and industry can all play a part in business classification.

What Is a Small Business?

The Small Business Administration’s Office of Advocacy defines a small business as one with fewer than 500 employees. Note, however, that this broad definition comes with certain exceptions and clarifications.

Legally, what counts as a small business in the U.S. is determined by either a business’s number of employees or its average annual receipts, and varies widely by industry.

For example, your local newspaper could have up to 1,000 employees and still be a small business. A bed-and-breakfast could make up to $7.5 million in annual receipts and also be considered a small business. For a closer look at the SBA’s size standards by industry, see this table.

In addition, a small business (according to the SBA) must also:

• Be for-profit.

• Be privately owned and operated.

• Be headquartered and primarily operated in the U.S.

• Not be “dominant in its field on a national basis.”

As of August 2017, there are 29.6 million small businesses in the U.S.

What Defines a Micro-business or a Medium Business?

Within the broader definition of “small business,” micro-businesses and medium-sized businesses have their own size specifications, explained below.

Despite having no official designation in the SBA’s size standards, identifiers like “micro” and “medium” are used by organizations like the U.S. Census Bureau to further define and compare these types of businesses.

A micro-business has fewer than 10 employees. It is the most common type of employer firm—3.8 million micro-businesses were in operation in 2016, most operated by a single person.

A medium, or mid-sized, business has more than 100 but fewer than 500 employees. (Large businesses have more than 500 employees but fewer than 1000, and businesses with more than 1,000 employees are classified in the U.S. as “enterprise.”)

Why Do These Definitions Matter?

Classifying businesses by size allows the government to regulate and tax businesses appropriately and provides business owners certain kinds of protections not available to enterprise organizations. Entrepreneurs who run micro, small, and medium businesses can access unique financing options, dedicated government contracts, and other business resources and tools.

The SBA also has rules in place for representing the size of your business accurately. These regulations include serious financial consequences for portraying your business as smaller than it is in order to claim “small business” status and reap undeserved benefits.

To review:

• Small business: Fewer than 500 employees*

  • Micro-business: Fewer than 10 employees

  • Medium business: More than 100 employees but fewer than 500

*A small business may have upwards of 1,000 employees, depending on the industry. Small businesses may also be classified by average annual receipts rather than number of employees.

Remember that, if you operate a small business, you have access to unique support through organizations like the Small Business Administration, which offers some of the most affordable loans available to entrepreneurs.

The SBA (as well as many smaller organizations, like your local Chamber of Commerce) also offers counselling and educational resources to help small business owners keep their doors open, get ahead, and grow.