If you think you may qualify as a small business in the eyes of the government, there’s a fairly simple way to find out. The Small Business Administration (SBA) has a tool to give companies an idea of where they stand on business size. It's really important to know the size of your business for many reasons, especially because small businesses are granted access to assistance programs, tools, and certain small business set-asides. In this blog, we'll dive into the SBA’s Size Standards tool and what you can learn from the results.
Step 1: Defining Your Primary NAICS Code
The first step is determining the "key" you need to work this tool--your primary NAICS Code. North American Industry Classification System (NAICS) Codes are part of a classification system used by government agencies to collect, analyze, and publish statistical data on the North American business economy. The federal procurement sector uses the codes to classify specific industries, and also to determine business size. Size Standards are based off NAICS Codes and are important in determining your business size. So if you don't know it already, you'll need to identify your primary NAICS Code.
In the last few years, NAICS Codes were cross-mapped to match with Special Item Numbers (SINs), so if you know which SINs you sell under this could be a great place to start. We suggest you check out NAICS.com for a full list of the industries and their corresponding codes.
How Do NAICS Size Standards Work?
As mentioned above, NAICS Codes are used to decide whether a company qualifies as a small business concern for federal contracting purposes. It considers economic characteristics comprising the structure of an industry, including:
- Degree of competition
- Average firm size
- Start-up costs and entry barriers
- Distribution of firms by size
- Technological changes
- Competition from other industries
- Growth trends
- Historical activity within an industry
- Unique factors occurring in the industry that may distinguish small firms from other firms
- Objectives and impact on those programs of different size standard levels
Using this data, the SBA is able to set its size standards for businesses across all industries. You can find more information on how the SBA forms their size standards here. They are adjusted regularly by the SBA, so it's important you are evaluating your business size on a routine basis.
Step 2: Gather Revenue and Employee Information
For the use of the SBA’s Size Standards tool, you will need two pieces of information from your firm. The first is the average annual receipts or revenue for the last five years. For that information, you will need to take your total revenue for the last 5 years and divide that by 5.
The second piece of information you will need is the average number of employees for the last 24 months. The SBA counts all individuals employed on a full-time, part-time, or other basis. This includes employees obtained from a temporary employee agency, professional employee organization, or leasing concern.
Depending on your primary NAICS Code, the tool will ask for either your annual receipts/revenue or your number of employees, so it’s best to have both handy.
Step 3: Entering Information into the SBA Size Standards Tool
To get started on the size standards tool, you can find it on SBA’s website. It will take you to a page that looks like the screenshot below.
Once you have gotten to that page, select “Start” to get started. Once you have selected start you will need to input your 6-digit primary NAICS Code. Once you have input your NAICS Code, it will automatically generate the NAICS Code and description in a drop-down seen below.
So, for example, if your primary NAICS Code is 541511 Custom Computer Programming Services, it will look like this:
Once inputted, select search and go to the next page. On the next page, you will want to either your “Average annual receipts or revenue” or “number of employees” depending on what the page prompts you. For this example, the SBA wants to know average annual receipts or revenue.
So you would enter the number in the “Five-Year Average” box and select “Check Size.”
Once you have selected “Check Size” it will show if you may qualify as a small business under that NAICS Code. It will also give you additional information as to which office you should reach out to for more information on determining your size standard.
As you can see, the green check mark below has decided that with these numbers, our example is considered a small business.
You’ve Determined You’re a Small Business—Now What?
If your company is considered a small business, congratulations! This can be a great advantage in the federal market. Once you determine your business size, you should ensure you are declared on your SAM.gov registration record as small, and begin marketing your company as a small business. This is important because government agencies are looking for small businesses to meet their small business goals and prime contractors are looking for subcontractors to partner with.
As a small business, you will have access to several assistance programs and small business set-asides to help you better compete in the market. You can also qualify for additional socio-economic programs as a small business especially if you are women-owned, veteran-owned, live in a historically underutilized area, are economically disadvantaged etc.
Utilizing your small business designations to their full potential can benefit your business exponentially in the federal marketplace. If you’re unsure if you are utilizing your small business qualifications, or you are interested in getting a GSA Schedule to take advantage of your small business designation, we would be happy to help you.
