Experience in transitioning out of being a certified small business?

June 03, 2021

by a searcher from University of Missouri-Kansas City - Henry W. Bloch School of Management in Overland Park, KS, USA

We are looking at acquiring a company that has been functioning as a small business designee for the entirety of their existence, with a large part of their revenue coming from government contracts. US government contract guidelines require small businesses to stay under $41.5M in annual revenue. When looking at growth opportunities, what do we need to know or keep in mind about how moving beyond the $41.5 M minimum threshold for "small business designation" will affect revenue growth moving forward? Has anyone purchased a company that moved away from being a "small business" with current contracts in place with success? Our belief is that any current contract won't be effected and since they are now an approved service provider they will continue to win contracts with current customers. Looking for feedback and/or insights.

Reply by a searcher
from Texas A&M University in Johnson City, TN, USA

^redacted‌
Great question. I have similar questions in setting up long term strategy.

What I have found:
* the $41.5M is true only for certain NAICS codes (some are much less!). If you qualify by number of employees, you could be larger in terms of revenue. You need to look up the relevant NAICS code for the business here: https://www.sba.gov/document/support--table-size-standards
* additionally, you may be determined to be "affiliated" by one of many ways, which (I think) may cause status questions: https://www.sba.gov/document/support-affiliation-guide-size-standards
* You may be able to get around certain affiliation requirements by qualification as a SBIC (but unclear to me if this only allows 7a participation or also contract competing): https://www.honigman.com/assets/htmldocuments/SBA_CARES_ACT.pdf
* If you look contract by contract, this is what you must understand in DD
* Once you get out of designated status, you have to compete with the "big boys", life may get harder (unless you are already winning contracts that are not set asides)

Reply by a searcher
from National University of Ireland, Galway in Seattle, WA, USA

I led a business that did just that. All previous SBIRs and seclusive access to follow on grants where preserved. This helped buffer us through the change. However we actually considered curtailing growth somehow to stay qualified. It was very concerning. All cliffs are. We had enough influence to get some projects removed from SBIR designation. All in the fairly distant past. I strongly recommend discussing with an expert in the grant / project application field. There are undoubtedly mitigation strategies you can deploy, even including lobbying for a code change to keep you in the game. We explored that as well.

+2 more replies.

Join the discussion