Story excerpt provided by SmallGovCon

Written by Steven Koprince

The House and Senate have passed the “Small Business Runway Extension Act of 2018,” which appears poised to become law in the coming days.  As my colleague Matt Moriarty has written, the bill would amend the SBA’s small business size rules to use a five-year average, instead of a three-year average, in calculations using receipts-based size standards.

The purpose of the bill is to help contractors avoid becoming “other than small” following a period of quick growth, but not all companies will benefit.  For companies with declining revenues, the bill may backfire, causing those companies to be stuck as large businesses longer.

Under the Small Business Act and SBA’s corresponding regulations, size in receipts-based NAICS codes has long been based on a three-year average (except for newer companies, which essentially use a pro rated formula).  If a company grows quickly, it can soon “size out” of relevant size standards.  By the same token, if a large company’s receipts decline, it eventually can “roll out” higher-earning years, recapturing small business status.

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Originally published December 17, 2018