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FAQ: Should You Register Your Business As a “Small Business” With the Federal Government?

Oct. 8, 2012
Small Business
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The Facts

Each year, the U.S. government sets aside 23% of its federal contract dollars to be spent solely on the goods and services provided by small businesses.  These contracts can be from any federal department, and they add up to $425 billion each year.

The government is mandated to reserve all of its purchases that cost $3,000 to $10,000 for small businesses, although this requirement is waived if the contracting officer does not receive competitive offers from at least two small businesses.

Small business certification is necessary to be eligible for this revenue from government contracting; the government only works with registered small business contractors.

What are the requirements to be eligible for these government contracts?

You must first be registered as a small business.  The SBA states that a business is a small business if it has fewer than 500 employees and average annual receipts of less than $7 million, but there are some exceptions.  The SBA released a Summary of Size Standards by Industry that outlines these exceptions.

You also must be running a profitable and well-established business.  The Small Business Administration’s district director Bridget Bean stated that the government is unwilling to work with businesses that do not have positive cash flow or have not been established for two years or more.

NerdWallet’s Analysis

Small business registration can be time-consuming, requiring registering in several different databases.  One the registration is complete, obtaining government contracts can be even more difficult

NerdWallet’s recommendation is to register as a small business once your business has been established for two years and has positive cash flow so that government contracts may be available to you.  Without these two criteria, the government would not give you business contracts, so the registration will not be useful.  If your business has two years of positive cash flow, you should register so that you may be able to join in on these contracts totaling $425 billion per year.

If you do decide to register your small business and compete for government contracts, the SBA wrote a simple five-step guide to registering.

Other Expert Opinions

“The Federal government spends billions of dollars a year on set-asides and has small business quotas for Agencies. Therefore it is worth it. The return depends on type of small business. Currently, Service Disabled Veteran Owned Small businesses are receiving a significant portion of set-aside funding. However, the Veterans Administration is doing away with self-certification.

There is no cost to register in the System for Award Management (SAM), which is required for all Federal contractors. However, if the company is a minority owned business and is pursuing 8a status, certification by the Small Business Agency is required. Many companies hire firms to help them with the certification and this can cost between 4-10 thousand dollars.

Using SAM requires some knowledge of the Federal Acquisition Regulations (FAR). Again, using professional assistance may be beneficial.

We have registered. It is a requirement to do direct business with the government, and many teaming agreements now require registration.”

“1. Registering as a small business is a self-attestation in most cases. A Duns number and about 30 minutes to register is all it takes for Federal government.

2. State governments vary but there is often no direct registration to just be “small”.

3. The other certifications, such as 8A, HubZone, or Veteran-owned take longer to do and require submission of a fair amount of documentation to prove small AND the set aside status.

4. It’s only worth it if the company FIRST decides that as a strategy it will pursue government contracts. It is not something you decide to do as an afterthought and NO, a company that thinks this is another way to just get business will waste a lot of time and money.

5. For us, we have received a few state and local contracts and are just starting to spend some time and money to market into the Federal world. Sales cycles are 12-18 months for Federal contracting so companies must be prepared for this.”

“For me and my business, it’s totally NOT worth the time and energy to do this work. Especially here in California, where the State takes between 120-180 days to pay its invoices, why would I go after that type of work? Yes, there is money to be had but for my current consulting practice of working with other small businesses, it’s not worth it. The time and hassle of getting through the confusion of CMAS is just not worth the return on investment.

I have a colleague who is registered and all of his business comes from the State government, so it works out for him. Frankly though, that’s putting all of your eggs in one basket and I can’t see doing that.”

“Registering in government databases – for the sake of government contracting – can be time consuming, cumbersome & complicated. There are ample forms, acronyms, terminology that doesn’t always make sense. Small businesses (just as veteran owned or woman owned, etc.) can receive special assistance from the government (Federal, State & Local) as well as from large businesses who have requirements to sub-contract with the small firms.

Every state government has their own program for registering as a small business. The Federal government has 2 programs through the SBA (Small Business Administration) called 8a and 8m. The application process is extensive and can about 3-6 months to complete. The small business is required to submit financial statements, various narratives, net worth, etc. Companies can do this on their own & it costs nothing (but their time). Consultants are available to assist and can range from $3k to $15k for various levels of assistance with the forms.”

“It’s always worth it if you take the right steps. For example you can use the SBA’s instructions and follow the simple four step process, which includes getting a DUNS number (free), register with System of Award Management (also free), find the NAICS codes for your company (free again), and obtain a past performance evaluation. The last is the only step that would cost between $195 and $215. If you can handle the fees then by all means register because you would reap the benefits in the future.”

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