What Is the Definition of a Micro Business and Why Is It Important to Woman-Owned Businesses?

One of the four agenda items for the National Association of Women Business Owners (NAWBO) public policy efforts for 2022 is for Congress to further define a micro-business vs. a small business. The current definition of small business does not recognize the fact that most woman-owned businesses have fewer than 10 employees — and are competing with the current definition of small businesses in the U.S., defined per the North American Industrial Classification System (NAICS) code as a business that employs up to 500 employees. This makes it more challenging for micro-businesses to complete for capital and procurement opportunities.

Many micro businesses are sole proprietorships with no employees and less than $250,000 in annual revenue. Most woman-owned businesses fit into this category.

According to the U.S. Department of Treasury, the Small Business Administration has taken the lead in defining what constitutes a small business in the eyes of the federal government, and the SBA’s definition is the most widely used. 

This body of definitions is called “size standards” and can be found in Title 13 of the Code of Federal Regulations (CFR), Part 121. Small business is defined using size guidelines for the different categories of business enterprises, which include agricultural production, communications, manufacturing, retail, service, transportation and warehousing, and wholesale. Subcategories are included under each of these headings.

Size is determined by the amount of average annual receipts or by the number of employees. Service businesses generally have a size standard that would be determined by averaging the gross annual receipts for the last three years. This average is then linked to the NAICS code for the procurement a business is looking to compete under. If its average annual receipts fall below the amount designated for that NAICS code, then that firm is small by definition. For example, if a business were selling computer programming services under NAICS code 541511, its average annual receipts over the past three years would have to be less than $21 million to qualify as a small business concern. For most manufacturing NAICS codes, the number of employees will be used as a size standard. For example, a mining firm is considered “small” if it has fewer than 500 employees.

Because the body of definitions is complex and constantly changing, expert advice is essential to determine whether a business is “small.” 

With the current definitions of small business, many woman-owned businesses are unable to compete equally due to the lack of resources. Having Congress create a micro business classification will benefit most businesses in the United States, including the majority of woman-owned businesses. 

Please reach out to your congressional representatives to request that they support the creation of a micro-business classification. 

Sindi Major-Martinez is an accomplished business and technology executive with more than 30 years of experience working with organizations in the private and public sectors. She has worked for large organizations in various leadership positions and has started two of her own award-winning technology managed services and consulting companies. Major-Martinez received her MBA from the W. P. Carey School of Business Executive Program at Arizona State University.