The SBA’s size standards determine whether or not your business actually qualifies as small. Size standards describe the largest size a business can be to participate in government contracting programs and compete for contracts reserved or set aside for small businesses.

Also, size standards vary by industry and are generally based on the number of employees or the amount of annual receipts the business has. A small business can be defined as a business having employees to a maximum of 250 or maybe much more. They are private corporations, partnerships, or sole proprietorship that have less revenue than larger businesses.

SBA’s Definition of Small Business

The Small Business Association (SBA) sets numerical definitions, or “size standards”, for every non-profit small business in the United States based on the business’ number of employees and average annual receipts. But, these size standards are not just a one-size-fits-all kind of thing. Instead, the definition of a small business actually depends on the kind of industry you are in.

Thus, depending on your industry, a small business could be defined as a maximum of 250 employees or a maximum of 1,500 employees, which might not seem like such a “small” business, at least to an individual entrepreneur. Or, they could be defined by a maximum of $750,000 to $38.5 million in average annual receipts.

Suggested Blog –Cash Flow Statement – What It Is, Example And How To Prepare One

Qualifying as a Small Business

In order to qualify as a small business, your business needs to meet certain basic criteria, before you can compete for government contracts that are set aside for small businesses.

(a)  Get proper registration and ID

In order to sell goods and services to the government, you will have to register your small business.

(i) DUNS number

DUNS number

Before you can bid on government proposals, you need to get a Dun & Bradstreet (DUNS) number. A DUNS – data universal number system is a unique nine-digit identification number for each physical location of your business.

When registering for your DUNS number, you will need to have the following on hand:

  • Legal name
  • Headquarters name and address for your business
  • DBA – doing business as or we can say doing business by using second name
  • Physical address, city, state, and ZIP Code
  • Mailing address (if different from headquarters and/or physical address)
  • Telephone number
  • Contact name and title
  • Number of employees at your physical location
  • Whether you are a home-based business
  • You can apply for a DUNS number by visiting the DUNS Request Service website.

(ii) NAICS code

NAICS code

You will also need to match your products and services to a North American Industry Classification System (NAICS) code. NAICS codes classify or described the businesses based on the particular product or service they supply. Any business can generally have a primary NAICS code, but it can also have multiple NAICS codes if it sells multiple products and services.

To find your NAICS code, view the NAICS code list at the U.S. Census Bureau website.

Suggested Blog –How To Get A Business Licence – The Ultimate State-By-State Guide

(b) Meet size standards

To be eligible for government contracts reserved for small businesses, your business must meet size requirements. These size standards define the maximum size that a business and its affiliates can be to qualify as a small business for a particular contract. The SBA assigns a size standard to each NAICS code. Most manufacturing companies having 500 employees or fewer and most non-manufacturing businesses with average annual receipts under $7.5 million are able to qualify as a small business.

However, there are exceptions by industry. You can view these in Title 13 Part 121.201 of the Code of Federal Regulations (CFR) or in the SBA’s table of small business size standards. To determine if your business qualifies as “small” for government contracting objective, use the SBA’s Size Standards, Tool.

Suggested Blog –Legal Requirements For Starting A Business

(c) Register with SAM

To participate in government contracting, you must register your business in the federal government’s System for Award Management (SAM). SAM is a database that government agencies use to find contractors.

Using SAM, you will be able to certify that your business is eligible for contracts that are reserved for small businesses. You will also be able to represent if your business is eligible for contracts under an SBA contracting program because it is disadvantaged, women-owned, veteran-owned, or located in an underutilized area.

Your small business’ profile in SAM is like a resume. Creating a profile that is accurate and appealing is important to winning a government contract. Make sure to use accurate, descriptive terms about your business so that contracting officials will be able to find you in search results.

(d) Maintain compliance

In order to participate in government contracting, you must comply with all laws and regulations. The federal government’s purchasing process governs by the Federal Acquisition Regulation. Regulations covering and following government contracting programs for small businesses are listed in 13 CFR 125.

When it comes to calculating the size of your business, you must include the annual receipts and the employees of your affiliates. When another person or business is able to control and regulate your business, they are an affiliate. This is true even if they don’t exercise their control.

(e) Other Requirement

  • Be a for-profit business of any legal structure
  • Be independently owned and operated
  • Not be nationally dominant in its field
  • Be physically located and operate in the U.S. or its territories

However, businesses that are outside the U.S. territories may still be counted as small, as long as they have an operation in the U.S. and that makes a significant contribution to the U.S. economy through payment of taxes or use of American products, material, labor, etc.

Suggested Blog –Business Startup Costs That Business Owners Need To Know

The Definition of Small Business, Industry by Industry

The SBA has a comprehensive table of standards, breaking down the acceptable sizes of small businesses by industry (and sub-industries, even).

Below is a summary of the size definition by larger industries:

Agriculture: Maximum of $750,000 in average receipts.

Mining: Maximum of 250 to 1,500 employees depending on the sub-sector within mining.

Utilities: The optimum number of employees ranges from 250 (for renewable electric power generation sub-sectors) to 1,000 (for electric power and natural gas distribution businesses).

Construction: Maximum of $36.5 million in average receipts.

Manufacturing: The maximum number of employees ranges from 500 to 1,500 (with approximately 27% of all manufacturing businesses having a maximum employee cap at 500 employees).

Wholesale Trade: The maximum number of employees ranges from 100 to 250.

Retail Trade: For one-third of all retail trade sub-industries, size standards sets at $7.5 million in average annual receipts.

Transportation and Warehousing

The maximum number of employees ranges from 500 to 1,500. Some sub-industries in transportation and warehousing are defined by a range of $7.5 million to $37.5 million in average annual receipts.

Information

The maximum number of employees ranges from 500 to 1,500, depending on the sub-industry. The maximum average annual receipts for this industry range from $7.5 million to $38.5 million.

Finance and Insurance

A maximum of 1,500 employees (for direct property and casualty insurance carriers), and a maximum in average annual receipts ranging from $32.5 million to $38.5 million.

Real Estate, Rental, and Leasing

A maximum of $7.5 million to $32.5 million in average annual receipts.

Professional, Scientific and Technical Services

A maximum of $7.5 million to $20.5 million in average annual receipts, or a maximum of 1,000 to 1,500 employees.

Health Care and Social Assistance

A maximum of $7.5 million to $38.5 million in average annual receipts.

However, there are many other sectors that the SBA sets exact size standards for small businesses. When you take a look at the different size standards defined by the SBA, you might think that all small businesses are actually pretty big in the United States.

But, to put these size standards into context, small businesses with fewer than 20 employees make up 89.6% of all U.S. business enterprises. And on top of that, 23 million businesses in the United States actually have no employees at all, meaning there is only an owner going about the business by themselves.

Beyond hard numbers, the SBA also looks at other essential qualifications in order to determine whether a company should be distinguished as a “small business”. These include whether or not:

  • The company  has its headquarters in the United States
  • The company operates primarily in the United States
  • Company is a for-profit business
  • It is independently owned and operated
  • The company is a minority company in its larger industry

Why Does the SBA Set a Cap for Small Businesses in the U.S.?

The SBA has a set definition for an official small business to assist in promoting small businesses in the larger economy. The definition of a small business (by each industry) is an important measure to help the smaller ones to go up against the big, market-share holders in their industry.

It means to help small businesses score business loans from the government (or SBA loans). Win contracts with the government and access general tools that can help them compete against larger corporations.

For example, when a small business owner running a soda distribution company with only 30 employees needs to acquire a small business loan or strike a deal with a local or state government, they have tools and resources in place to access what they need when they are going up against their larger competitor, such as Coca-Cola or Pepsi.

But on the flip side of this argument, some businesses with 1,500 employees are still “small” and technically have the same protections in place as a 10-person small business in their industry.

Suggested Blog –Types Of Commercial Loans For Business

Summing Up SBA’s Definition of a Small Business

So, if you consider yourself a small business owner, then odds are you probably do run a small business. However, if there is a chance that your average annual receipts might tip you over the edge, calculate your business’ size before you apply for any government funding or government contracts. This could be as easy as checking the SBA’s chart of size standards and adding up the number of people employed by your business. Or you might need to do a quick calculation to determine your annual receipts.

Related post

Leave A Comment