New Calculation Method for Small Business Size Standards

The US Small Business Administration (SBA) announced that it is altering the method for calculating average annual receipts, which are used in determining size standards for small businesses. This change comes as part of the SBA’s efforts to create consistency among all small business size standards. Effective on January 6, 2020, the rule will change the calculation of average annual receipts size standards from a three-year averaging period to a five-year averaging period. There will be a transition period through January 6, 2022, as set forth in 13 CFR 121, during which firms can choose whether to use the three-year averaging period or the five-year averaging period. The modified annual receipts calculation will benefit firms that are growing and are about to exceed the threshold for relevant size standards. The change will allow firms more time to grow in the middle market, build resources, and develop capabilities necessary to compete with larger businesses once they exceed the threshold for the small business size standard. For the latest updates on this and other business tax matters, schedule a consultation with Aprio today. Update: After January 6, 2022, all government contractors will use a five-year average for average annual receipts. See more information here.