Eleanor Finch
Businesses are classified as small, medium, or large based on their operating revenue, number of employees, or total assets. While there is no universally accepted definition of what constitutes a small, medium, or large company, the size of a business is an important consideration as it brings different requirements, responsibilities, and reporting. Size standards are established by the Small Business Administration (SBA) in the US and vary by industry, generally based on the number of employees or the amount of annual receipts. In the UK, the Companies Act 2006 categorises companies as small, medium, or large, with medium and large companies required to comply with off-payroll legislation and IR35 reforms. The European Union (EU) also offers definitions of small and medium-sized enterprises (SMEs), with small-size enterprises defined as companies with fewer than 50 employees and medium-size enterprises as those with fewer than 250 employees.
| Characteristics | Values |
|---|---|
| Micro-business | 1-4 employees |
| Small business | 5-15 employees, annual revenue below $10 million |
| Medium business | 100-499 employees, annual revenue between $10 million and $1 billion |
| Large business | 500+ employees |
| Small business (EU) | fewer than 50 employees |
| Medium business (EU) | fewer than 250 employees |
| Small business (China) | 10-49 employees, annual operating revenue of at least $1 million |
| Medium business (China) | annual operating revenue of $1 million to $10 million, total assets of $20 million to $50 million |
| Small business (UK) | turnover not more than £15 million, balance sheet total not more than £7.5 million |
| Small business (US) | based on number of employees or amount of annual receipts |
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Employee count
The number of employees a company has is a key factor in determining whether it is a small, medium, or large business. While there is no universally accepted definition, employee count is a critical metric used by governments and organizations to establish size standards and regulations for companies.
In the United States, the Small Business Administration (SBA) defines size standards that determine whether a business qualifies as small. These standards vary by industry and are based on employee count or annual receipts. For example, a small business is generally defined as having fewer than 50 employees, a medium business as having 100 to 499 employees, and a large business as having 500 or more employees.
Similarly, the European Union (EU) offers definitions for small and medium-size enterprises. A small-size enterprise in the EU is defined as a company with fewer than 50 employees, while a medium-size enterprise has fewer than 250 employees.
Other countries have their own unique classifications. For instance, in Australia, a micro business typically has between 1 and 4 employees, while a small business has between 5 and 15 employees. China also has a complex system for classifying company size, which takes into account factors such as employee count, revenue, and total assets.
It's important to note that the definitions of small, medium, and large businesses may vary across different sources and industries. Additionally, some countries and organizations may have specific criteria, such as revenue thresholds or industry-specific considerations, that further refine the classification of company size.
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Revenue
The definition of a small, medium, or large company varies across different countries and industries. Each country has its own criteria for classifying businesses, and these classifications are essential as they determine the responsibilities, expectations, and legal requirements of a company. While there is no universally accepted definition, revenue is one of the key factors used to distinguish between small, medium, and large companies.
In the United States, the Small Business Administration (SBA) defines a small business as one with assets of $10 million or less, while a large business has assets exceeding this amount. According to the SBA's 2021 census, small and medium-sized businesses (SMBs) with annual revenues below $50 million are considered small, and those with revenues between $50 million and $1 billion are considered medium-sized.
In the European Union (EU), a small-size enterprise typically employs fewer than 50 people, while a medium-size enterprise has fewer than 250 employees. Micro-companies, a subset of small businesses, employ up to 10 people. The EU also considers revenue as a criterion, with micro-businesses defined as having annual revenue or a balance sheet total of up to €2 million.
China offers a more complex classification system. For example, in the retail sector, small to medium-sized companies employ 10 to 49 people and have an annual operating revenue of at least $1 million. In the agriculture sector, small to medium-sized companies are defined by their annual operating revenue, which ranges from $0.5 million to $5 million.
While revenue is a critical factor in determining the size of a company, it is not the sole criterion. The number of employees, total assets, and industry averages also play a significant role in classifying a company as small, medium, or large. For instance, a company with high revenue but minimal transactions may still be considered small, and a company with fewer employees may be classified as medium-sized if its revenue is substantial.
The distinction between small, medium, and large companies is important as it influences strategic decision-making, compliance requirements, and access to resources and opportunities. Small and medium-sized enterprises (SMEs) make up a significant portion of the global economy and contribute substantially to employment and GDP in many countries.
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Total assets
The total assets of a company are one of the criteria used to classify it as small, medium, or large. While there is no universally accepted definition of these categories, total assets, revenue, and the number of employees are the most common criteria used.
In the UK, a company is classified as small if it meets two of the following criteria: turnover of not more than £15 million and a balance sheet total of not more than £7.5 million. While this source does not explicitly mention total assets, the balance sheet total is likely to be closely related to the total assets of the company.
In China, the classification of company sizes is more complex. For example, Chinese retail companies are small to medium if they employ 10 to 49 employees and have an annual operating revenue of at least $1 million. Their total assets are not considered in this classification. On the other hand, Chinese real estate developers are classified as small to medium if they have an annual operating revenue of $1 million to $10 million and total assets of $20 million to $50 million.
In the US, the Small Business Administration (SBA) determines whether a business qualifies as small based on size standards that vary by industry. These standards are generally based on the number of employees or the amount of annual receipts, which are calculated as the "total income" or "gross income" plus the "cost of goods sold." While this source does not explicitly mention total assets, a company's total assets are likely to be reflected in its annual receipts.
In the European Union (EU), a small-size enterprise is defined as a company with fewer than 50 employees, while a medium-size enterprise has fewer than 250 employees. It is not clear whether total assets are considered in this classification.
In Australia, a small business typically has between 5 and 15 employees and an annual revenue turnover of less than $10 million. While this source does not mention total assets, they are likely to be related to a company's revenue and employee count.
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Industry
The classification of a company as small, medium, or large is based on a variety of factors, including the number of employees, revenue, assets, and industry. While there is no universal definition, each country has its own criteria for categorizing businesses. Here is an overview of how the size of a company is determined in different industries:
Service Industry: In the service industry, small and medium-sized businesses (SMBs) are typically distinguished from large corporations based on their employee count and annual revenue. Small businesses usually have fewer than 100 employees and annual revenues of less than $50 million. Medium-sized businesses employ between 100 and 999 people and generate revenues ranging from $50 million to $1 billion annually. Large enterprises, on the other hand, have separate departments, employ experts in various fields, and cater to a diverse range of customers.
Manufacturing: In the manufacturing industry, small and medium-sized enterprises (SMEs) are prevalent. SMEs contribute significantly to employment and GDP in developing countries. For example, in China, small to medium-sized agriculture companies are defined by their annual operating revenue, ranging from $0.5 million to $5 million.
Agriculture: In the agriculture industry, the size of a company can vary significantly. Small and medium-sized enterprises in this sector may include family-owned farms or cooperatives. The number of employees, farm acreage, or revenue generated from agricultural products can be factors in determining the size of an agricultural business.
Retail: In the retail industry, small businesses often focus on a specific product or service, a limited geographic area, or a niche customer segment. Medium-sized retail businesses may expand their product offerings, target a broader customer base, and explore new markets. Large retail enterprises, such as supermarkets or department stores, have multiple departments and serve a wide range of customers.
Technology: In the technology industry, small businesses may specialize in specific software or hardware solutions, while medium-sized businesses might offer a wider range of products and services. Large technology companies, like Apple or Microsoft, have diverse product portfolios, extensive research and development departments, and a global customer reach.
It is important to note that the definitions of small, medium, and large businesses can vary across different countries and industries. The legal requirements, regulatory compliance, and market expectations also differ based on the size of the company. As a business grows, it takes on more significant responsibilities and faces unique challenges and opportunities.
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Country-specific definitions
The definition of a small, medium, or large company varies across different countries. Here is a list of definitions from several countries:
European Union (EU)
The EU defines small-size companies as those with fewer than 50 employees, and medium-size enterprises as those with fewer than 250 employees. Micro-companies, a separate category, employ up to 10 people. SMEs represent 99% of all businesses within the EU and generate more than half of the European Union's gross domestic product (GDP).
Canada
Industry Canada defines a small business as one with fewer than 100 employees, provided the company produces goods. The threshold for small businesses that provide services is 49 or fewer employees. Medium-sized businesses have between 100 and 500 employees. Statistics Canada, a data collection organisation, defines SMEs as having fewer than 499 employees and less than $50 million in gross revenue.
United States
SME definitions in the US vary across industries, according to the North American Industry Classification System (NAICS). SMEs are generally independent firms with less than 50 employees, but this upper limit differs across states, with some capping employee counts at 200 or 250.
China
China's system for classifying company size is complex. For agricultural companies, the small to medium category includes those with annual operating revenue between $0.5 million and $5 million.
South Africa
In South Africa, a medium-sized business typically employs up to 200 people, or 100 in the agricultural sector. The maximum turnover for a medium-sized business varies across sectors, ranging from $346,100 in agriculture to $4,429,600 in wholesale trade.
Poland
In 2011, Poland had 36.2 SMEs per 1,000 inhabitants, with nearly seven million people employed by small businesses. SMEs contributed to around half of the country's GDP.
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Frequently asked questions
A small company typically has fewer than 50 employees and an annual revenue of less than $10 million. However, the definition of a small company varies across countries and industries.
A medium-sized company generally has between 50 and 250 employees and an annual revenue between $10 million and $1 billion. Medium-sized companies tend to have greater regulatory and compliance requirements than small companies.
A large company typically has more than 250 employees and an annual revenue of over $1 billion. Large companies are subject to off-payroll legislation and IR35 reforms in some countries.
Small companies are generally more agile and flexible than medium or large companies, allowing them to adapt quickly to changing market conditions and customer needs without extensive internal bureaucracy.
Small and medium-sized companies may have limited resources, including a smaller employee base, less annual revenue, and fewer assets. They may also face challenges in scaling their business and may need to partner with other companies to produce their products or services.
