Understanding the Difference Between a Small Business vs a Large Businesses

1.     Each One Generates Revenue Differently

Large businesses are companies that generate sales of 10 million dollars or more by selling their products or their services. They are usually traded publicly so they have a board of directors to report to and answer to. So, showing a large profit is extremely important. They must also provide financial statements that will be audited and publicly reported. 

Small businesses are companies that generate smaller revenues and are not owned by or overseen by a board of directors. They are usually owned by one owner that is heavily involved with the day to day running of the business and all aspects. Smaller companies are not required to have their earnings reported publicly or to be audited.

2.     Understanding the Difference for Financial Records

Large businesses always want to show large earnings and a positive growth trend. It is also important that their stock is doing well so they can sell at a higher margin and make current stockholders happy. This is all due to the executives running the day to day operations of the company having to report to a Board of Directors that are clearly focused on the numbers.   

Small businesses have another use for financial records. Because they are the sole owners, they do not have anyone to report to so if the business is not doing well it all rest on their shoulders. The financial records are mainly used to minimize taxes and show the business is running at its top peak performance. They also use their earnings to measure the Seller’s Discretionary Earnings or SDE. This helps value the company and shows the company’s viability.

3.     Overhead Costs – How it Affects Gross Earnings

The larger the company the higher the overhead costs. You have more employees, more daily operating costs, larger purchasing, and inventory. This all eats into the gross and net revenues. Unless the large company is bringing in continued business and large contracts the faster all these costs significantly reduce revenue.

A smaller company has lower overhead costs, fewer employees, and does not need to worry about obtaining large contacts or projects to keep their doors open. They need to concentrate on the day to day operations and smaller marketing campaigns. They may be able to survive a downturn in the market longer than a larger company.

Once you decide which size company is right for you enlist the help of a Professional Business Broker. They will help you with your search and be able to provide you with all the financial information. Think about how much knowledge, time, and dedication you have to give the business. Do your research and listen to the experts and enjoy the success of your new company.

If you would like a free valuation in order to find out how much your business is worth, reach out to Trent Lee. He is the #1 “Most Closed Transactions” in the entire country for the First Choice Business Broker franchise.