Guide to knowing the size of your business
Are you confused about what is considered a small business? Do you need to know whether you should classify your business as a small, medium, or large business? Then you do not need to worry anymore since we are here for you. There are several classes and types of businesses. Knowing the size of your business makes it easy to obtain all the legal documents and avoid paying more than needed. Large businesses are expected to pay more as compared to small businesses. Therefore in this article, we shall discuss everything you need to know the size of your business. Also, we shall discuss what is considered a small business and any other relevant information you need to know. Let’s get started.
How to Determine the Size of Your Business?
To determine the size of your business, you must take note of the following things:
Number of Employees
Considering the number of employees is the easiest way to determine the size of your business since it only takes a simple calculation. However, this does not give an accurate picture of your business. Firstly, if you have a few part-time employees, it might indicate that your business is small. On the other hand, if you have a huge number of full-time employees, it might suggest that your business is large. So, you need to divide the number of employees by the average number of hours worked per employee. Bizop is an expert of starting a small business; visit them for more interesting information.
Volume of sales
That is the most common method to determine the size of your business. However, calculating the volume of sales can be tricky and time-consuming. To begin with, you must know how to calculate the units of sale to determine the total volume of sales. For example, let’s say you sell products via catalogs and the average selling price of your product is $2.00 per unit. Then, the total sales volume for the year would be equal to the number of units multiplied by the average selling price.
Profit earned
That is a very effective way to determine whether your business is large or small. All you have to do is take note of the profit earned each month and divide it by the total number of units sold during that month. If the profit earned divided by the sales units is greater than one, then your business is considered large. Otherwise, it is small. Gross revenue earned is similar to the profit earned method. However, in this case, you must take note of the gross income earned instead of the profit made. Sales/cost of goods sold in this case, you must determine the total cost of goods sold and then divide it by the total number of units of sale. If the result is more significant than one, your business is considered large. Otherwise, it is small.
Level of technology
In many cases, businesses with high levels of technology are large. However, this is not always true. For example, an inventor with a newly developed product may find his business a small one because he cannot generate enough profit to support his lifestyle. Also, a business person who sells a product or service via word-of-mouth may generate huge profits even though his technology is simple. On the other hand, your business will likely be large if you have a complex and automated business where the selling is done via an expensive advertising campaign. The Sizes of Businesses in Different Countries knowing the size of businesses in different countries is extremely important since it affects the cost of doing business. For example, suppose your company is considered a “small” company in your own country. In that case, you might decide to setup operations in another country where the cost of doing business is much lower.
Number of your customers
Another way to determine the size of your business is by taking note of the number of your customers. If you have only a few dozen customers, it might indicate that your business is small. On the other hand, if you have several hundred or even thousands of customers, it might suggest that your business is large. That is not always true, though. For example, an individual operating out of his own home with his resources might have hundreds or even thousands of customers but still, be small because he is not operating on a commercial scale.
The value of business assets
That is a relatively new way of finding out the size of your business. What happens is, an appraisal is made of all the significant assets of your business, such as buildings, equipment, inventory, etc., and the total of those assets are then compared to the size of your business. If your business has a high number of assets, your business is likely considered large, and otherwise, it is small. This method is not 100% reliable since it does not consider the cost of buying and maintaining the business assets.
Raw materials used in the business In this case, an estimate is made of the number of raw materials used in the manufacturing of your products or the operation of your business. If the raw materials used are high, your business is likely considered large. On the other hand, if raw materials are low, your business is likely small.
Marketing expenses
Lastly, the marketing expenses a prevalent way to determine the size of your business is to take note of the amount of money you spend on marketing. If the number is high, your business is likely considered large. On the other hand, your business is expected to be small if the number is low. That is a pretty safe method but not necessarily 100% accurate. Conclusion In conclusion, what is considered a small business is any business whose annual gross sales are less than $500. Also, the business has fewer than ten employees. A medium-sized business is any business with sales between $500 and $1,000 and has fewer than 50 employees. A large business is any business with sales over $1,000 and has over 100 employee’s .now that you have all this info, you should be able to determine the size of your business with a fair amount of accuracy