According to the National Hispanic Business Information Clearinghouse (TM) $40 billion is how much the US government spends contracting with small businesses, out of the more than $425 billion it spends on goods and services annually. And considering that these numbers are based on pre-bail out statistics, the government’s spending spree combined with an administration that appears very comfortable with expanding the government’s role as a service provider, could mean these margins are about to increase considerably.
In fact, by law, the US government must spend at least 23 percent of its prime contract dollars with small businesses. Just as it can be a great advantage in competitive government contracting to be a woman-owned business or a minority-owned business, being a small business can give you a serious competitive edge when bidding on federal government contracts.
How Small is Small if You are in Business Today?
If you are a sole proprietorship, then there is probably not much doubt in your mind that you qualify as a small business (unless you are an extremely successful businessperson.) But do you know the guidelines the US government uses for defining a small business?
According to the Small Business Administration, a small business must meet all of the following criteria:
- Be organized for profit.
- Have a place of business in the United States.
- Operate primarily within the United States (or do at least one of the following— use American materials; use American labor; or make a significant contribution to the US economy through payment of taxes).
- Be independently operated and owned.
- And not be dominating in your field of business on a national basis.
In determining whether or not you qualify as a small business, the US government does not care whether you are a sole proprietorship, a corporation, a partnership, or any other legal business structure; it cares how many people you employ and how much revenue you generate.
In some industries, the number of employees you have determines whether you meet governmental guidelines as a small business, such as under 100 employees for wholesale trade or under 500 employees for manufacturing. In most industries, the determination of ‘small’ is based on a company’s average annual receipts. Generally size or income criterion is evaluated based on a three-year average.
Certification as a Small Business, Woman Owned Business, or Minority Owned Business
If you are interested in bidding on federal government contracts, the designation as a “small business” is a self-certifying one. This means that if you say you are a small business, the government will accept that you are, however should you be challenged on this point, the burden to prove that you are falls on you as the businessperson, and the penalties for misrepresenting your size can be severe.
While the classification as a woman-owned business is also self-certifying at the federal government level, gaining recognized status as a minority owned business is not. And when doing business with other governmental agencies, such as state governments and municipal government agencies, certifications may be required even when they are not required by the federal government.
You may want to learn more about certifications through the following agencies or offices:
- National Minority Supplier Development Council (Minority Owned Business)
- Women’s Business Enterprise National Council
- Disadvantaged Business Enterprise Certification
- Federal Small Disadvantaged Business Designation
- Small Business Administration’s 8a Certification
- Certification on the state government level through each state. (visit the websites for each individual state)
