Here’s What You Need to Know About the Small Business Runway Extension Act of 2018!
Just before the year ends, the Small Business Runway Extension Act was signed. But what is this law and how does this affect small businesses? Read this article to learn more!
THE SMALL BUSINESS RUNWAY EXTENSION ACT
On December 17, 2018, the President of the United States signed the Small Business Runway Extension Act of 2018 into law.
The Bill is a total of 10 lines that amend the Small Business Act to modify the method for prescribing size standards for business concerns.
It also modifies the determination for size standards from evaluating small businesses on a 3-year average to now looking at their 5-year average.
So, what does this mean? This means that small businesses can rein as small businesses for a longer period of time.
Consider that in the old system, the Small Business Administration typically determines small businesses based on the number of employees or dollar amount of revenues from a three-year average.
However, with this new law, they’re already looking at a five-year average which means that the government is now taking your previous five years of history and they’re using that to determine whether or not you’re a small business under the respective primary NAICS code.
HOW DOES THIS AFFECT US?
So, this is great news because existing small businesses who are growing quickly can now remain smaller for longer periods.
Let’s say if you start off in the year zero with no revenues yet and you start winning contracts years later, you can’t directly be bumped up into the large business status because of that.
This is why, you can still take advantage of being a small business for a little bit longer as you’re continuously growing and getting contracts.
To give you more information, we have an example below:
NAICS 238910 – Site Preparation Contractor – $15M
Company A (High growth Small Business)
- Year 1 – $500k
- Year 2 – $1M
- Year 3 – $10M
- Year 4 – $22M
- Year 5 – $25M
3-year average – $19M (large business)
5-year average – $11.7M (small business)
On the other hand, this new law does hurt large businesses that have declining revenues because they’re going to remain large businesses for a longer period of time.
To give you an idea, we have this another example below:
Using the same NAICS code 238910, Site preparation Contractor – $15M.
Company B (Large Business)
- Year 1 – $25M
- Year 2 – $22M
- Year 3 – $15M
- Year 4 – $10M
- Year 5 – $8M
3-year average – $11M (small business)
5-year average – $16M (large business)
Hence, depending whether you are the little guy taking on Goliath or the big guy who just recently lost a few large contracts, this rule can impact your business moving forward.
Some attorney’s even suggested modifying the rule to use both formulas and take the smaller of the averages as your size, but I disagree with that evaluation.
“I think it is time that someone started introducing policies to help small companies effectively compete in this arena. I do not believe that we can ever do enough for small upstart firms. I am happy for the new policy and thank everyone who participated in it.”
With this in mind, if you want to learn more about certain federal contracting rules or how to navigate the federal marketplace overall, then check the resources below.
Congress give Small Businesses a Boost with new 2018 Act
Similarly Situated Entity helps Limitations on SUBCONTRACTING for small firms
Explaining the rules for subcontracting small business contracts