For the past several weeks in our Wednesday Workshops, I have been presenting information about the various certifications available for you to conduct business with corporate or government agencies. During those sessions, I always use the term “Small Business”. Well, what makes a business “Small”? Who decides if your business is small? And why is it important?
Let’s address those questions. The term “Small Business” is determined by what your business does. Every business either Does, Makes, or Sells something. That “something” defines your business; and the SBA uses the North American Industry Classification System (NAICS) Code to classify it. Depending on what that code is, there are income limits or employee size limits that will define businesses within those sectors as “small”.
Let’s look at an example. If you are a Heavy and Civil Engineering construction company that does highway, street and bridge construction, then your NAICS code is 237310. The annual revenue for your company would have to be less than $33.5 Million in order to be considered small. If however, your industry was in food manufacturing and you processed fresh and frozen seafood, your NAICS code would be 311712 (1) and your company would be considered small if it had 500 employees or less.
The tricky part is that most businesses have multiple codes that define what they do. One of my clients is an environmental remediation firm and their services fall under several codes including Environmental Consulting Services, Building Inspection Services, Remediation Services and Testing Laboratories. Well those 4 codes have 3 different amounts to be considered small ranging from $7MM to $19MM (2).
So what is a business to do? You know as well as I that business fluctuates. Very few small companies have the annual revenues in 2018 they had in 2013 as they were just recovering from one of the worst recessions in recent history. That may be true for your business as well. So what if your revenues are up one year and down another how does that factor in? Well, the SBA has tried to adjust for this by looking at a 3 year average. There are very specific things that the SBA considers as total annual receipts so review the guidelines (3).
The dilemma still exists, however, when your business can be categorized in several ways and each has a different definition for small. You can’t just use the biggest one since that could land you in an SBA protest and cause all kinds of problems. Generally all SBA certifications and even the System for Award Management (SAM) will ask for your “primary” NAICS code. This code most closely defines what the majority of your business entails. Let’s look back at the environmental firm example above. Yes, building inspection is a part of what they do as is testing of the environmental hazards they find, but the bulk of their business is in remediation and environmental consulting. So by using one of those codes as primary, they can defer to those parameters for the small business requirements.
Now you know how to quantify “Small” in SBA terms. So call me when you’re ready to benefit from the BIG advantages of being Small.
(1) Census Bureau NAICS code lookup - http://www.census.gov/eos/www/naics/
(2) Size Standards by NAICS code - http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=79f55e945db7db3fa154a4c606a52f19&rgn=div8&view=text&node=13:220.127.116.11.17.1.268.9&idno=13
(3) Calculating Annual Receipts - http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=79f55e945db7db3fa154a4c606a52f19&rgn=div8&view=text&node=13:18.104.22.168.17.1.267.4&idno=13