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SBA Hot Topic Tuesday – SBA Proposes Modification for Calculation of Annual Average Revenues for Small Businesses

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July 2, 2019

By Mary Miller
Contributing Editor, SBA Hot Topic Tuesday

SBA Hot Topic Tuesday – SBA Proposes Modification for Calculation of Annual Average Revenues for Small Businesses

The SBA has announced a proposal to modify the method of calculating annual average revenues as they are used to determine small business size standards. The proposed rule modification was recently published in the Federal Register.

The modification focuses specifically on changing the current calculation of annual average revenues from the current three-year to a five-year averaging period.

The proposed modification is based on the recent passage of the Small Business Runway Extension Act of 2018 (Public Law No. 115-324). This law allows for changing the requirements for recommended size standards as proposed by an agency without separate statutory authority to issue size standards. The law’s intent is to enable small business government contractors additional time to prepare for a transition to the full, open market should they exceed the size standard.

For service businesses, this law changed the averaging period from three to five years for calculating annual average revenues. However, the law did not address the averaging period for calculating the size of any other type of business.

In the spirit of consistency, the SBA is proposing to adopt a five-year averaging period across the board to capture all of the SBA’s revenue-based size standards in any small business industry.

If the proposed modification passes, many companies would be able to retain or regain the small business size status for either federal procurement or the participation in SBA loan programs. However, the change from a three to five-year averaging period may result in some small businesses either losing a small business status completely or shortening the term of their status.

To submit comments on the proposed modification, submit on or before August 23, 2019 to https://www.regulations.gov/, identified by RIN #3245-AH16. Comments may also be mailed to: Khem R. Sharma, Chief, Office of Size Standards, 409 3rd Street SW, Mail Code 6530, Washington, D.C. 20416.

To review SBA revisions to small business size standards across various industries, visit the SBA’s web site at https://www.sba.gov/federal-contracting/contracting-guide/size-standards.

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