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How to Determine if You Are a “Small” Business
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How to Determine if You Are a “Small” Business
By Tiffani S. Clements
If you are thinking about starting a small business, you may be wondering what the U.S. Small Business Administration (SBA) considers to be a small business. To determine whether your business qualifies as small, you must be able to answer “yes” to these questions:
- Is your business independently owned and operated in the United States?
- Is your business operated on a for-profit basis?
- Does your business make a significant contribution to the U.S. economy by paying taxes or using American products, materials or labor?
- Does your business meet the numerical size standard for its industry?
Despite what you may have heard, a business can qualify as small whether it is organized as a sole proprietorship, a partnership, a corporation or any other legal form, as long as it meets the four conditions above. The SBA has a numerical size standard for all private sector industries in the U.S. economy and uses the North American Industry Classification System (NAICS) to identify those industries. Depending on the characteristics of the industry, size standard eligibility is based on either the average number of employees for the preceding twelve months or on revenues averaged over a three-year period. It is important for a small business to meet the SBA’s criteria for size standards eligibility in order to apply for SBA financial assistance, and also to be eligible to receive federal contracts that are set-aside for small businesses.
Small businesses seeking federal government contracts must have their small business profile listed in the Department of Defense’s Central Contractor Registration (CCR) database at www.ccr.gov , where contracting officers look to procure goods and services from small businesses for the federal government. In Fiscal Year 2010 alone, the federal government awarded nearly $100 billion dollars in federal contracts to small businesses!
General Size Standards
The SBA has established several general size standards that vary by industry and are either revenue-based or employee-based. They include Construction, Manufacturing, Mining, Retail Trade, Services, Wholesale Trade and Agriculture. In general, revenues for the general and heavy construction industry may not exceed $13.5 million to $17 million, depending on the type of construction. Revenues for the services industry may not exceed $2.5 million to $21.5 million, although there are exceptions rising to $25 million depending on the particular product being provided.
For businesses in the retail trades, revenues may not exceed $7 million, but there are a number of exceptions. In Agriculture, the maximum can be as much as $9 million, depending on the agricultural product.
Generally, speaking size standards are based on the number of employees for businesses in mining services (500 employees maximum), the wholesale industry (ranging from 100 to 500, depending on the products involved), and for manufacturers, generally set at 500 or fewer employees, but with some exceptions ranging up to 1,500).
To view the various size standards for individual industries, take a look at SBA’s Table of Small Business Size Standards by NAICS industry on SBA’s Size Standards Web page at: www.sba.gov/size.
SBA’s Changes to Size Standards
In 2007, the SBA began the process of reviewing and updating size standards based on industry-specific data. Before this, the last overall review of size standards occurred more than 25 years ago. The process takes into account structural characteristics within individual industries, including average firm size, the degree of competition, and federal government contracting trends to ensure that size definitions reflect current economic conditions within those industries.
As a result, some small businesses that are on the brink of exceeding their current size standards will be able to retain small business eligibility under higher size standards. Also, federal agencies will have a larger selection of small businesses to choose from for small business procurement opportunities and more small businesses will be able to qualify for financial assistance from the SBA. SBA estimates that thousands of additional firms will become eligible for SBA programs, if the revisions are adopted.
The SBA comprehensive review of all size standards will continue for the next several years. The most recent proposed update to SBA’s size standards was on May 13, 2011, for the transportation and warehousing sectors and SBA is accepting public comments at: www.regulations.gov until July 13, 2011.
To see how the SBA establishes, reviews and modifies its revenues-based and employee-based small business size standards, you can view SBA’s White Paper entitled, “Size Standards Methodology,” at www.sba.gov/size.
If you have questions about whether your business is a small business, e-mail: firstname.lastname@example.org.
No matter what industry your business may be in, the SBA stands ready to help you start, grow and expand your small business!
Small Business Size Regulations 13 CFR §121.201
Guide to SBA’s Size Standards: www.sba.gov/size .