Terms

There are many terms commonly used interchangeably for self-employment or business ownership. These include "microbusiness," "small business," "small business owner," and "entrepreneur." Each term is defined below. 

Self-employment/self-employed: Working for profit or fees in one's own business (including a farm or ranch), profession, or trade for a minimum of 10 hours per week. (Source: Department of Labor)

Sometimes confusion exists about whether or not an occupation or situation meets these criteria. Is the realtor who rents space in a realty office or the beautician who rents a chair in a salon self-employed? What about the small business owner that sets up a corporation? There are two determining factors. The first is who pays state and federal taxes on the individual's salary. If the realtor or beautician pays his or her own federal and state taxes, then he or she is self-employed. The second is whether or not the person works for someone else? In the case of the corporation, even though the corporation pays the state and federal taxes, the individual does not work for someone else. In most cases he or she is the company president. 

Microbusiness

Microbusiness refers to a very small business. The Self-Employment Learning Project of the Aspen Institute defines a microbusiness (or microenterprise) as a "sole proprietorship, partnership, or family business, that has fewer than five employees, does generally not have access to the commercial banking sector, and can initially utilize a loan of under $15,000." 

After he was injured in a farming accident, Bob worked with his vocational rehabilitation counselor to start a welding business. Bob's business plan indicated that the shop had potential and that he would need to purchase $14,000 worth of equipment and initial supplies. It was important for Bob to have a stake in his shop so VR agreed to purchase $7,000 of the equipment. Bob contributed $2,000 of his own money and this combined with VR's investment and the business plan convinced the local microlending agency to loan Bob the $5,000 balance. Bob's is a microbusiness because it employs only himself and because his loan was less than $15,000.

Small Business

The Small Business Administration (SBA) defines a small business as a business that is independently owned and operated and not dominant in its field. Depending on the industry, eligibility is based on the average number of employees for the preceding 12 months or on sales volume averaged over a three-year period. Examples of SBA maximum size standards are: 

Manufacturing -The maximum number of employees may range from 500 to 1500, depending on the type of product manufactured.

Wholesaling - The maximum number of employees may not exceed 100.

Services - Annual receipts may not exceed $2.5 to $21.5 million, depending on the particular service being provided.

Retailing - Annual receipts may not exceed $5 to $21 million, depending on the product being provided.

General and Heavy Construction - General construction annual receipts may not exceed $13.5 to $17 million, depending on the type of construction.

Special Trade Construction - Annual receipts may not exceed $7 million.

Agriculture - Annual receipts may not exceed $0.5 to $5 million, depending on the agricultural product.

Entrepreneur: This term is often used interchangeably with "small business owner." However there are differences between the two, especially as the terms are applied by practitioners or people who study business ownership and entrepreneurship.

According to Webster's New World Dictionary an entrepreneur is "a person who organizes and manages a business and undertakes the risk for the sake of profit." Although it mentions "risk," this definition does not capture the essence of challenge and change inherent in entrepreneurship. In the Montana Entrepreneur's Guide Paul Larson says entrepreneurs want growth and need to be challenged. In a review of the small business and entrepreneurship literature published in 1984 James Carland, Frank Hoy, William Boulton, and Jo Ann Carland found that entrepreneurs have significantly different personalities and behaviors than business owners. Entrepreneurs are not found only in their own businesses - they often are employed by organizations. In an article published in 1997 James Reynierse states that entrepreneurs are the "movers and shakers" in all walks of life. Reynierse also quotes Peter Drucker's definition of an entrepreneur as a broad-based change agent who creates something new or different.

Small Business Owner: The Montana Entrepreneur's Guide describes a small business owner as a person who seeks independence and a decent-paying job. So, according to these definitions, an entrepreneur may be (but is not always) a business owner, and a business owner may be (but is not always) an entrepreneur. As a vocational rehabilitation counselor, the important thing to remember is that one need not necessarily be an entrepreneur to be successfully self-employed.

The Business Owner May (or May Not) be an Entrepreneur!

After his accident Larry completed a business degree but, after a long search, he was unable to find a job in his community of 20 thousand people. He decided the only way of finding employment was to create his own job. After investigating several different businesses, he purchased a local shipping company which he has now operated successfully for 8 years.

Monte has owned several businesses since he became disabled. He currently operates a water recreation equipment business situated on a large lake. However, he recently told a friend that he is "tiring of this business and has a great idea for a new business that he is convinced will do really well."

Who is the business owner? Who is the entrepreneur?

Discussion Questions

1. Do the consumers you work with tend to be entrepreneurs or small business owners? Why?
   
   
2. Given the definitions for microbusiness and small business, which type of business are the consumers you work with likely to be interested in starting? Why? 
   

Chapter 2 Study Guide: Terms

1. Self-employment is defined by the Department of Labor as working for profit or fee in one's own business for a minimum of hours per week.
   
   
2. What two factors are used to determine if a person is self-employed?
   
   
3. Which of the following are characteristics of a microbusiness? 
   a.  The business is a sole proprietorship, partnership, or family busines
   b.  Fewer than 3 employees
   c.  Can get a bank loan
   d.  Initially borrows under $15,000
   e.  a and d
   
   
4. According to the Small Business Administration the size of a small business varies depending on the industry but they are characterized as being owned and operated and not dominant in their field.
   

Study Guide Answers: Chapter 2 - Terms

© July 1998, 1st Revision June 1999, 2nd Revision February 2001