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
Is Linda Self-Employed?
Linda started a fine arts business of creating and selling her
own original paintings. Vocational rehabilitation helped by purchasing
supplies and adaptive equipment that made the business possible.
Linda paints and does telephone marketing, while her mother serves
as the business' bookkeeper, outside representative, and delivery
person. Linda's paintings are small and retail for $45 to $70,
and her disability limits her to working only an hour or two each
However, the business has been quite successful. When Linda first
started, she exhibited and sold her paintings through a local
pharmacy. The pharmacist liked the paintings so much that he began
marketing them to other pharmacies. By now her work has gained
regional recognition and is beginning to be recognized statewide.
Linda and her mother are working on plans for a home studio and
Is Linda self-employed?
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
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.
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
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
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
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
Who is the business owner? Who is the entrepreneur?
- Do the consumers you work with tend to be entrepreneurs or small
business owners? Why?
- 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
- 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
- What two factors are used to determine if a person is self-employed?
- Which of the following are characteristics of a microbusiness?
a. The business is a sole proprietorship, partnership, or
b. Fewer than 3 employees
c. Can get a bank loan
d. Initially borrows under $15,000
e. a and d
- 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