Small Business Certification

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Before you can begin business with the government your business must obtain the proper certifications. Small business certifications are like professional certifications; they document a special capability or status that will help you compete in the marketplace. Unlike permits and licenses, you do not need to obtain certifications to legally operate. However, in order to take advantage of business opportunities, such as government contracts, you may need to obtain some certifications.

Federal, state and local governments offer businesses opportunities to sell products and services. Many government agencies require that some percentage of the procurements be set aside for small businesses. Certifying your business can definitely help you successfully compete for government contracts.

The Federal government sets aside certain contract bid opportunities exclusively for small businesses. In order to compete for these contracts, you must first register as a vendor with the government.  As part of the registration process, you will be required to enter information about your company in the System for Award Management (SAM) database. In SAM, you may self-certify yourself as a small business, but you must meet the Federal government’s definition of a small business.

The US Small Business Administration defines a “small business” in terms of the number of employees over the past year, or average annual receipts over the past three years. Size standards vary by industry.   You may take it for granted that your company is a “small business.” The distinction is important if you wish to register for government contracting as a small business. To be a small business, you must adhere to industry size standards established by the U.S. Small Business Administration.  SBA has established numerical definitions of small businesses, or “size standards,” for all for-profit industries. Size standards represent the largest size that a business (including its subsidiaries and affiliates) may be to remain classified as a small business concern. In determining what constitutes a small business, the definition will vary to reflect industry differences. These size standards are used to determine eligibility for SBA’s financial assistance and to its other programs, as well as to Federal government procurement programs designed to help small businesses. Also, the Small Business Act states that unless specifically authorized by statute, no other Federal department or agency may prescribe a size standard for categorizing a business concern as a small business concern, unless such proposed size standard meets certain criteria and is approved by the Administrator of SBA.

The SBA, for most industries, defines a “small business” either in terms of the average number of employees over the past 12 months, or average annual receipts over the past three years. In addition, SBA defines a U.S. small business as a concern that:

  • Is organized for profit
  • Has a place of business in the US
  • Operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor
  • Is independently owned and operated
  • Is not dominant in its field on a national basis
  • The business may be a sole proprietorship, partnership, corporation, or any other legal form. In determining what constitutes a small business, the definition will vary to reflect industry differences, such as size standards.

Since all federal agencies must use SBA size standards for contracts identified as small business, you need to select a North American Industry Classification System (NAICS) codes that best describe your business and then determine if the business meet size standards for the selected NAICS codes. The North American Industry Classification System (NAICS) classifies business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. economy.  The NAICS industry codes define establishments based on the activities in which they are primarily engaged.  NAICS codes are also used for administrative, contracting, and tax purposes.  NAICS is production oriented (not product oriented) and categorizes businesses with others that have similar methods of production.

SBA uses NAICS as a basis for its size standards.  Size standards using NAICS as their basis apply to all Federal government programs, including procurement.  When the Federal government intends to acquire goods or services, it identifies the NAICS code that describes the principal purpose of that procurement.  Your business may have myriad capabilities, and the NAICS code for a given procurement opportunity may not be the same as your primary NAICS code.  That will not keep you from bidding or making an offer, so long as you meet the size standard for the procurement and have the capacity to provide the goods or services.  Once you have determined you are indeed a small business, you can then certify your business as small by registering as a government contractor.

For more information contact the Small Business Administration at www.sba.gov.

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