In a recent YouTube video, we discussed how the federal government calculates business size. Today’s video provides additional information on how to calculate the size of your business through annual receipts:
For more information, check out Volume 2 of the Koprince Law, LLC GovCon Handbooks Series, SBA Small Business Size and Affiliation Rules, or contact us here.
This transition phase is helpful, the SBA noted, to small businesses that might be adversely affected by an abrupt change to the receipts calculation period—namely, businesses with declining revenues over the preceding five years that are nonetheless close to the applicable size standard cap.
SBA’s accommodation of these companies is, by any measure, a commonsense solution to prevent inadvertent harm caused by the Runway Extension Act. But notwithstanding this laudable policy objective, is the new transition period legal?
At SmallGovCon, we’ve closely followed the SBA’s
implementation of the Small Business Runway Extension Act. After much confusion
caused by the delayed implementation of the Act, there’s finally a light at the
end of the tunnel: the 5-year receipts calculation period will become effective
January 6, 2020.
Importantly, the SBA’s final rule implements relief for businesses that will be adversely affected by the change to a 5-year receipts calculation period.
Since being passed by Congress in late 2018, the Runway Extension Act has been the source of great confusion among small business contractors: would size under receipts-based NAICS codes be calculated under the 3-year calculation period set out in the SBA’s regulations, or under the new 5-year calculation period mandated by Congress?
In a decision just publicly released, the SBA Office of Hearings and Appeals has weighed in. As of now, the SBA will still calculate size under the 3-year calculation period.
Make sure to check your NAICS code size standards based on receipts, because SBA is increasing them across the board on August 19 to give small businesses more time to grow. On July 18, the SBA announced it will increase monetary-based industry size standards (meaning receipts-based and assets-based size standards). This change is a result of adjustments for inflation that the SBA makes every five years. These rules will go into effect August 19, 2019.
In late 2018, Congress passed the Small Business Runway Extension Act, which had a single purpose: change the three-year average annual receipts calculation period (for determining small business eligibility) to a five-year calculation period.
Small businesses, for the most part, have been watching with bated breath for the SBA to comply with the Runway Extension Act. But as we’ve previously written, the SBA has thus far refused to do so (albeit under shifting rationale).
Now, the SBA has cemented its position against applying the
Runway Extension Act—according to the SBA, “[b]usinesses must continue to
report their annual receipts based on a 3-year average until the SBA amends its