We expect a fair degree of corruption, arrogance and drooling self-interest from our elected officials. After all, in the last 206 years, we have fallen a great distance from the days of the “virtuous republic” that existed-or was thought to exist-in that first decade after the Revolution. Yes, we expect it, but I would have more respect for the operatives, the party-men and the politicos themselves if they could be just a little intelligent about it. The current issue with the Bush Administration, Congress, the SBA and the awarding of a great deal of money earmarked for small business, is a case in point.

When Big Business Seems Small

It is illegal, a felony that comes with fines and a prison term, to try to pass your big business off as a small business to get one of the 23% of Federal contracts reserved for small businesses. Yet, it happens all the time. According to the American Small Business League, a non-partisan watchdog group, some $60 billion in Federal contracts go to major corporations each year. How it happens brings us to the question of how you decide that a business is truly small.

Counting Heads

What is a small business? How do you measure it? Is it revenue? Sales? Staff size? Any one of these could be a viable measure, but for the most part the matter is decided with staff size. Depending on the industry, you can have a maximum of 1,500 employees and still be considered a small business! (Federal Regulations Title 13, Part 121, Section 201)

These larger “small businesses,” with 1,000 to 1,500 employees, deal in oil, aerospace, rail transportation, textiles, and chemical and rubber products. Wholesalers, regardless of their products, are capped at 100; information technology value-added resellers are capped at 150 (a very recent change) while the rest are capped at either 500 or 750. In 2005 (the most recent data available), there were 5,966,069 firms in the U.S. with 500 or fewer employees and they employed 58,644,585 people out of a total employment of 116,373,003. That is 50.3% of the working population working in what could easily be described as legitimately small businesses. If you add up the firms with larger numbers of employees, you find that there are 11,546 of them and that they employ 9,475,180 people, 8.14% of the workforce.

Call me crazy, but a firm with 1,000 employees doesn’t seem to be very small to me! It may be small when compared to the giants in its industry, but it is a giant compared with the vast majority of small businesses. In 2004, there was an effort to bring the number of employees down from 500 to 100 for a business to be classified as small. In spite of a great deal of support for the measure-including U.S. Representative Lynn Woolsey (D-CA), who said: “By working to change the definition of a small business for government contracts from 500 to 100 employees, federal contracts specifically designed to ensure the success of American small business would go where they belong – to support Americans, not big companies dressed in sheep’s clothing.”-the effort was killed by the SBA itself. That, however, is only the beginning. Another has to do with how small businesses are certified.

Finding a Certified Small Business

The question of how many employees a small business can have is complicated even further when we see that the government has been rather lax in enforcing the contract award rules for small business. In fact, in 2005, some $49 billion in Federal contracts that were set aside for small business were actually awarded to the 13 largest government contractors. This lax enforcement has led to cases where the small business in question is actually a subsidiary of a much larger company, where businesses have outgrown their small business status, where big business misrepresents itself as a small business and where government procurement offices, such as with the military, simply disregard the rules and do business with who they like.

The Small Business Front

Two of the most prevalent ways that large companies can maintain a small business front are through the legal loopholes that allow a small business to retain its status throughout the life of its original contract-and bid on new business as a small business-no matter how large it grows and even after it is bought out by a large company.

In either case, what the company in question is doing is, in fact, legal. Their actions are also limited by the fact that the loophole is based on the length of the small business’ initial contract. For example, if a small business wins a 10-year contract to provide computer hardware, it maintains its small business status for the full 10 years of the contract regardless of how large it grows or if some huge conglomerate buys it. This has been an issue for some time. Consider the following:

According to a 2006 report on the U.S. Government Accountability Office: Commerce Information Technology Solutions (COMMITS) Next Generation Governmentwide Acquisition Contract, “We found that many of the 55 COMMITS NexGen contractors have grown significantly or have been acquired by larger businesses and may no longer meet small business size standards. We also found that a significant portion of the task orders intended for the smallest contractors were issued to larger, incumbent contractors.”

Incumbent contractors tend to get the lion’s share of the government’s business. A 2004 SBA Office of Advocacy: Eagle Eye Publishers’ Report said that: “Of the top 1,000 small business contractors in FY 2002, Eagle Eye Publishers’ analysis found 44 parent companies it identified as either large firms or ‘other’. Contracts to these two groups taken together had a total value of $2 billion.” The report continued, saying that: “The Department of Defense and the General Services Administration accounted for 79 percent of the contract awards found to have gone to large businesses.” One of the conclusions drawn from the report was: “As a result of this lack of transparency, many awards that should be reserved for small firms go to large firms unchallenged.”

1. Business Plan

In your business plan you are going to determine everything from who is going to be involved in running the business, how to find suppliers/salespeople, financing, marketing, locations, product resources. It is basically a blueprint about what systems you are going to put in place and what differentiates your business from others. A good resource for learning how to create a small business plan can be found on the sba.gov website.

2. Registration

It is important to register your business name with the US government, requirements will vary by state. An important resource online that provides name registration requirements is below.
Check out the business.gov website and search for registration guidelines.

3. Marketing Plan

Once you have a decided business in place and have analyzed the industry and determined what services/products you are going to provide and how you are going to develop those services/product and what resources you are needed you should devise a marketing plan. How are you going to sell those needed product/services? Who is going to buy them? Where are they going to buy them? How are you going to distribute them? Why are people going to buy them from you?

4. Financing

Once you have a solid business plan and marketing plan in place it is a good time to look at financing options. Determine your cash flow needs on a monthly, annual and 2-5 year plan if possible. How many products/services are you going to have to sell to make a profit. Are you going to finance the business yourself, through alternative lending sources or through your local bank or credit union. Determine the different financing options that are available for your specific business model and which one is best suited for your business. It may require upfront capital or ongoing capital or very little capital but may need capital when ready to expand. There are a variety of sites to find information on small business financing. One good one is businessfinance.com that identifies needs if you are already in business, starting or business or plan on buying a business. Check out the businessfianance website.

5. Finding your 1st customer

This is the most important thing you will need to do. Having your first customer and contract will do many things for you. It will determine how much current demand their is for your product/service. It will also determine what price the market is willing to offer for your product/service. You will also learn why people decide to choose your product over others or not.