What exactly does the term “small business” mean? Does it mean four guys plugging away on their computers in somebody’s basement? Is it one woman freelancing her time and talent as a writer? Or what about a manufacturing plant with about 200 employees. Is that what a small business is?

Much of the time it doesn’t matter. We use the term “small business” interchangeably in all sorts of circumstances. When it comes to conducting research, however, a precise, narrow definition is important, at least according to a working paper by the Small Business Administration’s Office of Advocacy.

The SBA paper examines how merging data on nonemployer businesses and employer businesses of varying sizes in research studies causes frequent misrepresentations in results and their interpretation. One such example, highlighted by the Washington Post’s Small Business blog, describes the impact that definition has on results regarding growth rates.

Nonemployers experienced high growth rates from 1992 to 2005, while employers and the self-employed grew at lower rates. From 1997 to 2002, nonemployers and employers combined experienced a decrease in average receipts per firm, but when taken as separate groups, they both had receipt increases. The reason for the discrepancy is that the number of nonemployers grew faster than the number of employers.

Small business research results are important because they can affect things like how small business owners run their businesses, how government leaders view issues facing the small business community, if someone decides to even start a business, etc. Because of the impact of research results, accuracy needs to be of utmost importance. Unfortunately, with an all-encompassing definition of “small business,” accuracy can be a difficult thing to achieve. So it’s up to readers/listeners to keep in mind the broad definition of “small business” and gauge for themselves how accurately the statistics reflect reality.

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