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Aspiring 8a

8(a) Certification – “Should my firm wait to gain more experience?”

In the past, I always told clients to apply for an 8(a) Certification as soon as they were eligible. This is because the major disqualifiers for most established firms was the 8(a) owner’s personal net income and personal net worth thresholds (a firm must be under these thresholds to be classified as economically disadvantaged, a requirement of the 8(a) BD Program). These economic qualifiers were both set at $250K, with some exclusions. The chief concern was that if an owner was successful, they could easily find themselves no longer eligible for 8(a) due to exceeding $250K frequently occurring. So, attempting to offset any of the nine years of 8(a) program eligibility did not make sense if it could cost the firm their ability to become 8(a) certified.

In July of this year, the SBA increased these limits to $350K for personal income and $750K for net worth. This gives a lot more room for people wishing to delay their 8(a) application until their business is more established. This now makes knowing how old your firm should be, before you apply for 8(a), a larger consideration.

ANALYSIS:  Let’s take a look at the sales numbers for firms in their first year of the 8(a) Program compared with the age of the firm.

Note:  The Average 8(a) firm does around $8MM per year in annual sales, however it takes several years to build to that sales level.

The results are for a new 8(a)’s FIRST YEAR in the 8(a) BD Program.

 

Age of Firm

First Year Federal Sales for 8(a) Firms

1st Year in Business

$250K

2nd Year in Business

$1.75M

3-5 Years in Business

$700K

6-10 Years in Business

$800K

10+ Years in Business

$900K


RESULTS:  The data shows that firms in their second year of business have the highest sales.

LOGIC FOR THIS RESULT:  2nd Year in Business 8(a) Participants strong showing is likely due to two reasons:

1. These firms are typically formed with the focus of fast tracking their 8(a) Certification.
2. The marketing of these firms is generally handled by the principals, and they do a good job of making contacts within the federal government.

From my experience, this is generally why these firms are more successful early on in their 8(a) careers.

TAKEWAYS:   Most firms can greatly benefit from an 8(a) Certification regardless of their length of time in business. For firms in their first year, waiting until their second year when they no longer would need a two-year waiver may make sense. However, firms that are applying after one year in business are then required to meet the SBA 70% maximum business concentration limit. Basically, your firm must have more than one significant customer. This additional qualifier must be weighed into the mix when deciding to delay a year one application.

My recommendation is to apply when you qualify, not risking your ability to get certified based on some unknown reason.

If you have any questions about getting qualified for the 8(a) Certification (or any other federal certification), or would like a more in-depth analysis, I always recommend contacting an industry expert such as ez8a or Advance 8a. Neither charge for an initial consultation.

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