SBA size standards determine whether your business qualifies as small for federal contracting purposes. These standards are critical because federal set-asides, preferential consideration, and many federal programs are only available to small businesses. Understanding your applicable size standard ensures you correctly assess your federal contracting eligibility.
What Are SBA Size Standards?
SBA size standards are thresholds set by the Small Business Administration that determine whether a business is classified as small. These standards vary by industry. Some industries use annual revenue as the measure. Others use number of employees. Still others use both measures.
Size standards are set by NAICS code. Each NAICS code has its own applicable size standard. Your business's NAICS code determines which size standard applies to you.
The Purpose of Size Standards
Size standards exist to ensure that federal small business programs benefit genuine small businesses. Without size standards, large corporations could misclassify themselves as small and access benefits intended for small businesses.
Size standards reserve federal contracting opportunities and set-asides for small businesses. They ensure that federal procurement supports small business growth and economic development.
Common Size Standards
Size standards vary widely by industry. Service-intensive industries typically use annual revenue as the size standard. Manufacturing and capital-intensive industries typically use number of employees.
Common revenue-based size standards range from $2.5 million to $50 million in average annual revenue, depending on the industry. Service industries like consulting, training, and information technology typically have revenue-based size standards in the $5 million to $35 million range.
Common employee-based size standards range from 100 to 1,500 employees, depending on the industry. Manufacturing industries often have employee-based size standards. Construction industries use employee-based standards.
Finding Your Size Standard
To determine your applicable size standard, first identify your NAICS code. Then find your NAICS code in the SBA's size standards table. The table shows the applicable size standard for each NAICS code.
The SBA maintains the official size standards table at sba.gov. You can search by NAICS code to find your applicable size standard.
For example, NAICS code 541511 (custom computer programming) has a size standard of $10 million in average annual revenue. If your programming services business has average annual revenue under $10 million, you qualify as small. If your revenue exceeds $10 million, you are classified as large.
Understanding Average Annual Revenue
For revenue-based size standards, the SBA uses average annual revenue, not total revenue in a single year. Average annual revenue is calculated by adding up your revenues for the past three fiscal years and dividing by three.
This calculation allows businesses with fluctuating revenue to maintain small business status even if they exceed the size standard in a single year. The three-year average must fall below the size standard.
For a new business with less than three years of history, use the revenue available to date divided by the months of operation and multiplied by 12 to calculate annualized revenue.
Employee Count for Size Standards
For employee-based size standards, the SBA counts all employees including full-time, part-time, and temporary employees. The employee count is calculated as the average number of employees in the past 12 months.
This calculation allows businesses with seasonal fluctuations to maintain small business status even if they exceed the employee threshold during peak seasons.
Size Standards and Business Structures
For corporations and LLCs, the business entity's size is determined by the entity's total revenue or employees. The business owner's personal size does not matter. For sole proprietorships, personal assets and income may be considered.
For partnerships, the size is based on the partnership's total revenue and employees, not individual partner assets.
For franchises and other structured businesses, specific size standard rules apply. Consult SBA guidance or a contracting consultant to determine how size standards apply to your specific business structure.
Size Standards and Affiliation
The SBA has affiliation rules that treat multiple related businesses as one for size standard purposes. If you own multiple businesses, the SBA may combine their revenues and employees for size standard calculation.
Affiliation rules prevent business owners from breaking up large businesses into small businesses to access small business programs.
Understanding affiliation rules is important if you own multiple businesses or have significant investor relationships. Consult SBA guidance or a contracting professional to understand how affiliation rules apply to you.
Size Standards and Federal Set-Asides
Federal set-asides are only available to businesses that meet the applicable size standard. If your business exceeds the size standard for your industry, you cannot qualify for small business set-asides, SDVOSB set-asides, or other small business programs.
This creates a strategic consideration. If your business is approaching the size standard threshold, you must decide whether to limit growth to maintain small business status or grow beyond the threshold and accept large business status.
Size Standards and Recertification
When you recertify your SDVOSB certification, you must verify that your business still meets the applicable size standard. If your business has grown and exceeded the size standard, you cannot be recertified.
Tracking your business size against your applicable size standard is an ongoing requirement for maintaining federal small business status.
Size Standards and Subcontracting
For subcontracting, the prime contractor is responsible for verifying that the subcontractor meets the applicable size standard. If a small business subcontractor exceeds its size standard, the prime contractor should not count the subcontractor toward small business subcontracting requirements.
For procurement consultants, understanding how size standards apply to subcontractors helps you advise clients on subcontracting strategy.
Size Standards and Your Federal Strategy
Understanding your applicable size standard informs your federal contracting strategy. If you are well below your size standard, you can pursue small business set-asides aggressively. If you are approaching your size standard, consider long-term strategy for managing size and federal contracting eligibility.
For SDVOSB businesses, maintaining small business status is often more valuable than growth beyond small business thresholds. Federal set-asides and SDVOSB opportunities create substantial revenue opportunities within small business constraints.
Your Size Standard and Federal Success
Your applicable size standard determines your federal contracting eligibility. Understanding your size standard, calculating your business size accurately, and monitoring your size as your business grows is essential to maintaining and leveraging federal small business programs.