There may be only one thing that’s certain in business: uncertainty is a growth killer. So, thriving businesses might see laws and regulations as providing a necessary element of certainty. They tell us the rules of the game. However, laws can also create uncertainty. When this happens, it can be tempting to tune out.
But there’s danger in complacency and often ignoring the issue is not a viable option. So, what’s a business owner to do? The way to win this game is to stay engaged without letting the uncertainty make you crazy. Let’s look at a recent example of legislative uncertainty to see what we can learn.
“Small” Business and the Small Business Administration (SBA)
If you are running a business that bids on government contracts or have clients in that vertical, you probably know that the Small Business Administration (SBA) defines what counts as a “small” business. You may also know that there are no federal definitions for businesses that exceed the SBA’s small business size standards. There’s no definition for a “mid-size” business, for example. As a result, the category of “other-than small” businesses encompasses firms that barely exceed the “small” limit all the way up to multi-billion dollar corporations.
This categorization (or lack thereof) puts many businesses in a serious bind. Imagine having an amazing growth year that disqualifies your business from competing for small business contracts (the very contracts that have been the drivers of growth) and from receiving SBA assistance — Congrats on climbing that ladder! Now figure out how to compete with the titans of your industry.
Many businesses caught in this situation have to make tough choices such as:
- Selling, often at a devalued rate
- Being subsumed into the supply chain of larger competitors
- Being forced into disadvantageous subcontracting partnerships with other firms
- Deliberately impeding their own growth and passing up opportunities to maintain their “small” business designation
For too many small businesses, “graduation” day spells the end of growth or the worst circumstances can be the end overall.
Enter the Small Business Runway Extension Act.
Recognizing the pressure graduating from small business status can put on companies teetering on the edge, Congress passed the Small Business Runway Extension Act to help bridge the gap. The bipartisan bill signed into law in December of 2018 allows small firms additional time to solidify their growth and beef up their infrastructure to compete against much larger companies.
Here’s the CliffsNotes version of the legislation: Whereas prior to the legislation, the SBA used a three-year average of annual gross receipts to determine whether a company is considered small, the Act extends the look-back period to five years.
And there was much rejoicing…except there wasn’t because the SBA threw a curveball. Shortly after the Act was signed into law, the SBA stated that the amended law would not go into effect until the SBA issues new regulations to implement the extended look-back period. This is problematic because it will (obviously) take time for the SBA to issue regulations and in the meantime, small business contractors are left wondering which period (three years or five) counts.
Why It Matters
If the Small Business Runway Extension Act affects whether your business is designated as “small” or “other-than small,” you already know all the ways the effective date impacts your business growth strategy. Planning how to invest in employees, equipment, software, infrastructure, and business development is tough enough without having to navigate this kind of uncertainty.
Here are a few inadvertent consequences of the current reality which could occur:
- Suppose a contractor wins a small business government contract after electing to calculate size based on five years of revenue (in anticipation of the change to the law). The contractor may find itself the subject of a size appeal raised by a competing bidder or some other stakeholder. Should the appeal be successful on grounds that current law says size must be calculated on the basis of three years of revenue (and the firm is “other-than small” on this calculation), the contractor could be penalized by the SBA for violating the size requirement.
- Or suppose a contractor wins a small business government contract based on the current three-year look-back period. The contractor could later experience two years of growth pushing it over the “small” limit on a five-year calculation and find itself the subject of a size appeal arguing it is “other-than small” once the Act goes into effect.
Either way, contractors face significant uncertainty that can be paralyzing and have beyond the single contract being pursued. For instance, if a firm is found to be pursuing small business contracts in violation of the size-requirement, not only does the contractor lose the contract it has won, but it is also banned from bidding on future contracts until it has been recertified by the SBA.
So What’s a Business Owner to Do?
First, our experts would not recommend a business stay intentionally small on the basis of uncertainty alone. Growing a business entails certain risks and making smart business decisions means figuring out which risks you can tolerate. If your firm falls within this three-year vs. five-year gap, the best plan is to be as prepared as you can be.
- Know your numbers cold
- Gather whatever data you need to be ready to pursue any opportunity that makes sense
- If you plan to bid on small business contracts, talk to your legal team about a potential size appeal
But above all, pay attention to the committee hearings and information being released about the Act going forward. For the latest update, watch this video recording of a March 26 hearing of the Committee on Small Business. Not only will it bring you up to speed, but listening to other small business owners discuss the impact of the Act’s uncertainty will help you understand how it could impact your business.
In fact, even if the Small Business Runway Extension Act doesn’t immediately affect your business, paying attention to this issue could benefit you in less direct ways. Your clients may be holding off on business growth in ways that impact your bottom line, for instance. Staying engaged may not make this uncertain mess any clearer, but it does ensure that you’re in to shift as soon as the SBA declares an effective date.
If after reading this, you’re left wondering what to pay attention to in this fast-paced and often uncertain business landscape, you’re not alone. At growth[period]Connect with us and let’s discuss how we can be your partner in realizing intelligent growth with sustainable results.