Eleanor Finch
The Small Business Administration (SBA) has a set of size standards that define whether a business qualifies as small. These standards vary by industry and are generally based on the number of employees or the amount of annual receipts the business has. The SBA's small business definition impacts eligibility for government contracts and loans. Businesses can use the SBA's Size Standards Tool to determine if they qualify as a small business.
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What You'll Learn
The SBA's size standards tool
The size standards tool requires the six-digit NAICS code to be entered. NAICS stands for the North American Industry Classification System, which is a way for companies to describe what they do. Each NAICS code has a corresponding size standard, which is based on either the average number of employees or average annual receipts.
Based on the NAICS code entered, the tool will request the average number of employees or the average annual receipts. Annual receipts refer to the "total income" or "gross income" plus the "cost of goods sold". These numbers can be found on the business's IRS tax return forms.
After entering the relevant information, the tool will confirm whether the business meets the small business size standard.
It is important to note that the SBA's size standards are reviewed every five years and that there may be exceptions by industry.
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Annual receipts
The Small Business Administration (SBA) defines a small business in terms of the average number of employees or average annual receipts, which can impact eligibility for government contracts and loans. Size standards are reviewed every five years and vary by industry.
The SBA's size standards tool can be used to determine whether a business meets the small business size standard. Businesses must enter their six-digit North American Industry Classification System (NAICS) code, which categorizes companies based on what they do. The tool will then request the average number of employees or average annual receipts. Based on this information, the tool will confirm whether the business meets the small business size standard.
Most manufacturing companies with 500 or fewer employees and most non-manufacturing businesses with average annual receipts under $7.5 million will qualify as a small business. However, there are exceptions by industry, and size standards may be based on either the number of employees or average annual receipts.
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Employee calculation
The Small Business Administration (SBA) defines a small business in terms of the number of employees or annual receipts, which can impact eligibility for government contracts and loans. Size standards vary by industry and are generally based on the number of employees or the amount of annual receipts a business has.
The SBA calculates the number of employees in accordance with 13 CFR 121.106. This is the average number of people employed for each pay period over the business's latest 24 calendar months. Any person on the payroll must be counted as one employee, regardless of hours worked or temporary status. If a business has been operating for less than 24 months, the number of employees is calculated as the average for each pay period that the business has been in operation.
The SBA's size standards tool can be used to determine whether a business meets the small business size standard. The tool requests the average number of employees or average annual receipts, based on the business's six-digit NAICS code. Each NAICS code corresponds to a specific industry and is used to determine which size standard applies to a business.
It is important to note that if a family owns multiple companies with different relatives running each one, the SBA will consider the total number of employees across all companies when calculating the small business status of an individual company.
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NAICS codes
NAICS stands for the North American Industry Classification System. It is a six-digit code that companies use to describe their business activities. The code determines the NAICS size standard that applies to a business, which could be average annual receipts or the number of employees. The size standard is important because it defines whether a business qualifies as "small", which in turn impacts eligibility for government contracts and loans.
The NAICS system was developed jointly by the U.S. Economic Classification Policy Committee, Statistics Canada, and Mexico's Instituto Nacional de Estadistica y Geografia. It was adopted in 1997 to replace the Standard Industrial Classification (SIC) system. It is the standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy.
The U.S. Census Bureau assigns and maintains NAICS codes based on a business's primary activity. However, some agencies, such as the System for Award Management (SAM), may assign multiple NAICS codes to one establishment. Businesses can use a variety of tools to search for their NAICS code, such as by entering a keyword or their old SIC code.
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Small business tax credits
The Small Business Administration (SBA) defines a small business by its number of employees or annual receipts, which can impact eligibility for government contracts and loans. Size standards vary by industry and are generally based on the number of employees or the amount of annual receipts a business has.
To determine if a business qualifies as "small", the SBA has a size standards tool that can be used. This tool requests the average number of employees or average annual receipts and confirms whether the business meets the small business size standard.
Small businesses can leverage tax incentives to save money. For example, the Small Business Health Insurance Tax Credit allows eligible small business owners to save up to 50% of employee healthcare costs if they buy insurance from the Small Business Health Options Program (SHOP).
There are also tax credits for businesses that engage in research activities. These businesses may qualify for a tax credit of 20% of their research-related expenses. For small businesses, this credit can be used to offset up to $250,000 of the employer's share of Social Security taxes.
Other tax credits include the Investment Credit, which consists of the sum of rehabilitation, energy, and reforestation credits. Small businesses can also take a credit of 50% of the premiums they've paid for their employees' health coverage, provided they meet certain conditions.
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Frequently asked questions
SBA stands for the Small Business Administration.
The SBA defines a small business in terms of the average number of employees over the past 12 months or average annual receipts over the past three years. The definition varies according to industry differences, especially size standards.
Size standards define the largest size a business can be to participate in government contracting programs and compete for contracts reserved for small businesses. Size standards vary by industry and are generally based on the number of employees or the amount of annual receipts the business has.
You can find out if your business qualifies as small by using the SBA's size standards tool or by referencing the SBA's table of small business size standards.
