DEFINING SMALL AND EMERGING BUSINESSES

How are small and emerging businesses defined? It is difficult to suggest parameters that categorize businesses as small, emerging, or growth companies. Definitions for small and emerging businesses will be suggested, knowing that each and every business has its own set of circumstances and challenges, regardless of its size or stage of development. The intent is to create a context to examine finance and accounting-related issues from the point of view of a developmental stage business. The idea is to capture the circumstances of the business owner/entrepreneur who is not well versed in the intricacies of finance and accounting and to present solutions to existing issues while preventing future difficulties. The following sections define small and emerging businesses.

Small Businesses

Businesses are defined and categorized based on any of a series of classifications: revenues, assets, number of employees, office/lease space, and so on. This text loosely follows the definition of small business used by the Small Business Administration (SBA):

■ Revenue. Companies with revenues less than $100 million

■ Number of employees. Companies with 500 or less employees2

■ Value. Companies with a net worth less than $18 million3

Afew categories of small businesses may be worth mentioning:

■ Mom & Pops. This term is uniquely descriptive of a piece of Americana which connotes a single-site operation that serves more as a lifestyle endeavor to owners than a revenue-generating cash machine. A Mom & Pop is typically a mature, stable organization with little or no momentum or inclination to change. It usually does not have a succession plan if the owners leave or become unable to run the business.

■ Family owned. These business types serve mostly to enrich the lifestyle and culture base for owners and their immediate family. The implied succession of the business to future generations assures a reasonable amount of forward momentum of the enterprise. It may be a single-site operation or be operating in multiple geographic and functional areas.

■ Start-up. Start-ups, which are described in more detail under “Emerging Businesses”, may have small or large revenue streams. The term refers to businesses with less than $100 million in revenues, less than 500 employees, and/or less than $18 million in equity (net worth). They may be public, private, or family owned.

■ Net ventures. Though net ventures have lost some of their luster of late, this ubiquitous business form deserves attention. This term refers to companies whose business model is driven almost exclusively by the Internet. Business-toBusiness, Web solutions, Dotcom, and E-Commerce are a few of the terms that personify net ventures. It is worth mentioning this business type since so many high-profile net ventures have spanned the entire business life cycle in recent years. This category has been deemed the new predominant cottage industry due, in part, to the lack of entry barriers in taking an idea to a business form.

Emerging Businesses

An early-stage or emerging business is also referred to as a start-up. Companies less than five years old are considered emerging businesses. These businesses often balance new products and technology with burgeoning markets. Typical of emerging businesses is the need for infrastructure—buildings, technology, business processes, and the people to manage them. Perhaps the most significant characteristic of emerging businesses is their likelihood of being headed by “green” leaders who may be long on hope and enthusiasm but short on experience. Emerging businesses may be public or private, large or small.