The Definition of Small Business is Changing for Some. Pt. 1

Sep 18, 2018
Bidsync Industry Blog

As a business owner or executive, you probably know your NAICS code is used for a number of taxation, regulatory and administrative purposes (even though it was originally designed for statistical tracking by the U.S. Census Bureau). And, if you’ve ever competed for a government contract, you know that NAICS codes are used by nearly every agency – if not every agency – to confirm your business’ eligibility to bid on certain contracts based on the category in which you generate your primary revenue.

However, were you aware that your business’ size classification is determined solely by your NAICS code? Or that that the definition of “small business” varies from one NAICS code to another? 

If you only operate within the private sector, the codes’ associated business size guidelines may not matter to you. But, if you want to do business with the public sector – especially as a small business – your NAICS code dictates your eligibility in many circumstances.

Take care when self-assigning your NAICS code. It is the only time that you have some control over your small business eligibility. As the Census Bureau notes: “There is no "official" way to have a company's NAICS code changed.” (At least not through the official issuing agency. See below for a possible workaround.)
Tip for New Businesses

While technically, “NAICS categories do not distinguish between small and large business, or between for-profit and non-profit…” the Small Business Administration (SBA) does develop and enforce size standards for each NAICS industry. These numerically-defined size standards “represent the largest size that a business (including its subsidiaries and affiliates) may be to remain classified as a small business concern.”

Did You Know?

The SBA size standards used to qualify a company as a “Small Business” are not equal across all NAICS codes/industries. You may be able to compete as a Small Business in a government solicitation for one product or service category but not another. 

Given that federal, state and local government agencies apply the SBA’s definition of a “small business” when determining a company’s eligibility for certain government contracts, whether set-asides or product/service specific, it is important that you are familiar with the SBA’s table of size standards for your NAICS code. You want to take advantage of every Small Business advantage  offered. (Don’t forget, most agencies have small-to-medium sized business (SMB) contracting goals. It benefits them to maximize small business utilization.)

At the same time, you need to be cognizant of the fact your small business qualification is temporary to a certain extent. Not just because, as your business revenue and employee base grow, you will likely outgrow your small business eligibility. Rather, when the sizing standards for certain NAICS codes change (as they recently did and could again in five years), companies can literally gain or lose “small business” status and government set-aside eligibility overnight, without a change in their actual business size. Just ask those companies affected by the U.S. Office of Management and Budget’s (OMB) North American Industry Classification System (NAICS) revision for 2017 (NAICS 2017).

Join us next week where we will discuss the 21 new industries NAICS created by reclassifying, combining, or splitting 29 existing industries.