How Small Is Small?
The United States Small Business Administration establishes the size standards used to identify a company considered small. The standards define the maximum size that an enterprise, together with all of its affiliates, may be if it is to be eligible for federal small business programs. As a general rule, a small business is one that:
- Is organized for profit
- Has a place of business in the United States
- Makes a significant contribution to the U.S. economy by paying taxes or using products, materials or labor
- Does not exceed the numerical size standard for its industry
Maybe that definition leaves you scratching your head. Here is another "rule of thumb" to use. If you deal with a product (i.e., manufacture, deal, or distribute), then the size standard is based on the average number of employees over a 12-month period, typically 500 or less. If you are in a service industry, then the standard is based upon the average annual sales over a three-year period, ranging in dollars from $750,000 to $28.5 million.
The following chart, which you also can find on the SBA web site, will help you decide where you fall. Just remember this is a summary of industry groups. Go to the SBA web site, for more detailed information. A business in one of the following industry groups is small if it is not greater than the size standard indicated.
In late 2005 the SBA adjusted its dollar based small business size standards, which are based on receipts, net worth and financial assets, to reflect inflation that has occurred since February 2002, when SBA last adjusted them for the same reason. Since the February 2002 inflation adjustment, prices have generally increased 8.7 percent. SBA increased the familiar "anchor" size standard from $6.0 million to $6.5 million. Size standards that are higher than $6 million also reflect similar percentage increases.
| SBA Small Business Size Standards |
| Company Classification |
Criteria |
| Manufacturing |
500 employees |
| Wholesale Trade |
100 employees |
| Agriculture |
$750,000 |
| Retail Trade |
$6.5 million (new anchor size 2005-06) |
| General and Heavy Construction (except Dredging) |
$28.5 million |
| Dredging |
$17 million |
| Special Trade Contractors |
$12 million |
| Travel Agencies |
$3 million (commissions and other income) |
| Business and Personal Services, except: |
$6 million |
| -- Architectural, Engineering, Surveying and Mapping Services |
$4 million |
| -- Dry cleaning and Carpet Cleaning Services |
$4 million |
| For specific size standards, refer to the size regulations in 13 CFR sec. 121.201 or 48 CFR sec. 19 or the table of small business size standards. |
SBA issued an Interim Final Rule on December 6, 2005, and the revised size standards took effect the same day for its loan programs. For federal procurement, the new size standards become effective on January 5, 2006.
For more information about SBA's increase to its small business size standards for inflation, please see this link.
If the size of a business exceeds the size standard for its overall industry classification, it may still be a small business under the North American Industrial Classification System (NAICS) code (pronounced "nakes") for that group. Some industries have higher size standards than the general one for the entire industry group. SBA has a Table of Size Standards on its web site at www.sba.gov. The SBA uses NAICS codes to identify industrial categories and make size determinations. Just remember that the SBA does revise the size standards from time to time based on changes in the data used to determine size. NAICS codes, as well as other government coding systems, are discussed elsewhere.
Your company's official status as a small business is also affected by ownership affiliations. Certain contractual arrangements with larger companies may disqualify eligibility. What this means is that if you are a business that is owned/held by a "large" business, you are a large business. This is to ensure a level playing field and fair competition among small businesses.
The SBA defines affiliates as:
Affiliates - Affiliation with another business concern is based on the power to control, whether exercised or not. Such factors as common ownership, common management and identity of interest (often found in members of the same family), among others, are indicators of affiliation. Power to control exists when a party or parties have 50 percent or more ownership. It may also exist with considerably less than 50 percent ownership by contractual arrangement or when one or more parties own a large share compared to other parties. Affiliated business concerns need not be in the same line of business. The calculation of a concern's size includes the employees or receipts of all affiliates.
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Work Smart
While you can use these general standards to make an educated assessment, only the Small Business Administration has the authority to make an official size determination. Anyone can challenge a company's size declaration, but it is the SBA that will settle the issue.
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Again, the important thing to remember is that it doesn't matter whether a company is classified as large or small. The companies that successfully sell to the government are the ones that do their homework and "keep at it," while companies that just "give it a try" almost never succeed.
Be the innovator - the government is looking for an item - you have a better way or process. Don't just sit on the sideline. Get out and sell yourself.
We know of a contractor that helped a buyer by sending a form with all the information the buyer would need to prepare a good quote, along with his company information and point of contact printed on it. The buyer made copies of the form and gave it to the other buyers as well. Be helpful if you see a better way and work with the government. If you do have a better way you may be surprised at the "payoff."
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