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Small Business. Federal Contracting. What's the deal?

Posted By Guy Timberlake, The American Small Business Coalition, LLC, Monday, November 27, 2006
Updated: Sunday, June 29, 2008

I talk to people everyday who want to know more about working with the government and leveraging socio-economic programs to gain an edge as they do so. I mentioned in a previous entry that there is a gross misunderstanding of what it takes to do business in the federal sector and what being a small business is all about.

For the sake of this conversation, let's separate small business owners into two categories. Small Business Owners and Entrepreneurs. There is a difference. Anyone can be a Small Business Owner, but not everyone is an Entrepreneur. In my opinion, Entrpreneurship is something you're born with. It's a state of mind, a will to adventure and push the envelope. Not to say that being a Small Business Owner does not develop some of these qualities, but having true Entrpreneurial Spirit just adds a certain zing.

I feel as though I can tell the difference. 

Entrepreneurs live their businesses. Small Business Owners take it on as a job. Just my opinion.

To that end, there are many definitions for small business. Everybody has their version of it, literally. Go poll twenty people on the street about what a small business is, ad you'll likely get twenty (or more) different answers. In some way, most or all of them may be right. In the commercial world (B2B) there are different definitions for small business than there are in federal contracting. If you are working with State, Local and Municipal agencies, you'll likely see different measures there as well. As far as companies that do business direct with federal agencies and those that subcontract to companies that work with government agencies, all that matters is that you meet the burden of the Size Standard associated with the related North American Industrial Classification System (NAICS) Code. The NAICS code is the new, improved and more granular version of the four digit Standard Industrial Code (SIC) system. NAICS Codes are six digits long, and are more descriptive than SIC Codes. The definitions of the NAICS Codes describe the particular disciplines, processes, expertise and offerings of entities operating in the described business segments. For example, if you provide educational services, it may drill down into post-secondary, accredited training, apprenticeship training (further broken down into sheet metal, electricians, plumbers, carpenters, etc.) Each of these NAICS definitions will have an associated size standard represented by a dollar amount in millions of dollars or by numbers of employees.

The dollar amount may range from $750,000 for a hog farmer, to $165,000,000 in assets for a credit union. The number of employees may range fron 100 employees for a dairy products merchant wholesaler to 1,500 employees for companies involved in aircraft manufacturing.  As long as the organizations are below the given number for a three year average (current year and two previous) they would qualify as a small business for federal contracts under that specific NAICS Code.

Most companies will have more than one NAICS Code that relates to the products and services they offer, so it's a matter of studying the codes to determine which one best represent you. Additionally, you may find that you qualify at different levels based on the NAICS Codes you select. This will be important to note because as bid opportunities are issued by government agencies, they are assigned a NAICS Code based on the prevalent disciplines required to complete the requirement. You may be a small business for one opportunity and not a small business for another.

In a future post, I'll talk about small business set-aside requirements.



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