Ways to Exit
As an 8(a) participant the last thing your want to do is leave the 8(a) BD program. I would rather be prepared and fully understand the program. So let’s get into it. There are five (5) ways that a certified 8(a) business may leave the 8(a) BD program. First way is to complete the nine (9) year program term which SBA refers to as graduation. The next way to exit the program is by voluntary withdrawal or voluntary early graduation. Next is the difference between the two is the withdrawal means you have not met your goals and objectives in your business plan. If you have met your goals and objectives, then it would be called a voluntary early graduation.
Why would you want to Voluntary Withdrawal or Voluntary Early Graduation? Well, if you feel you have gotten everything that you can from the program then you can just withdrawal from the program. Also, if you feel the program is not meeting your expectations, which happens a lot then you can elect to Voluntary Withdrawal.
Now let’s discuss graduation and early graduation.
Early Graduation & Graduation
SBA may graduate a 8(a) certified business from the program when it has completed its nine year program. Or prior to the expiration of its program term when SBA Determines one of the following:
- You have successfully completed the 8(a) programs by substantially achieving the targets, and goals set forth in your business plan, and demonstrate the ability to compete in the marketplace without assistance from the 8(a) programs.
- One or more disadvantaged owners upon whom eligibility is based is no longer economically disadvantaged.
How Does SBA Determine Whether I Have Met My Goals & Objectives?
SBA will review your business plan targets, objectives and goals of your business plan when assessing your overall competitive strength and viability. Now SBA will look at the totality of the circumstances which involves the following seven (7) factors:
- What degree of sustained profitability has the business achieved?
- The sales trends, including improved ratio of non-8(a) sales to 8(a) sales since the firm entered the program;
- Next, SBA will review the business net worth, financial ratios, working capital, capitalization & access to credit and capital;
- SBA will review the current ability to obtain bonding;
- Next, SBA will compare your business and financial profiles with profiles of non-8(a) businesses in the same primary NAICS Code as the 8(a) company.
- SBA will review the strength of management experience, capability and expertise of the disadvantaged owner(s).
- And lastly, SBA will check if the 8(a) business can operate successfully without 8(a) contracts.
Exceeding Primary NAICS Code Size Standard
One thing to keep in mind while you are in the 8(a) BD program is to make sure you do not exceed your size standard for your primary NAICS code. Why? SBA may graduate an 8(a) business prior to the expiration of its program term where the firm exceeds the size standard corresponding to its primary NAICS code. If you are getting close to exceeding your NAICS code is it wise to revise your business plan to another NAICS Code that lets you continue to grow. In order to do so you will need to add the NAICS code to your System for Award Management (SAM) profile and update your business plan to include the new NAICS code.
The next step is to start getting contracts in the new NAICS Code. Once your revenue on your new NAICS Code exceeds the revenue of your primary NAICS code you may request for your NAICS code to be changed through SBA.
SBA may graduate a 8(a) business prior to the its graduation date when the disadvantaged owner(s) withdrawal excessive funds and/or business assets which cause SBA to determine that the 8(a) business has demonstrated the ability to compete in the marketplace without assistance under the program.
Withdrawals are excessive if in the aggregate during any fiscal year of 8(a) participation if you exceed:
- $250,000 for sales up to $1 Million
- Are your sales between $1 Million and $2 Million? If so, you can withdrawal up to $300,000
- $400,000 for sales exceeding $2 Million
NOTE: If you qualify for more than one set-aside you need to make sure that you do not take out more money than the certification allows. For example, Woman Owned Small Business cannot exceed $350,000 in adjusted gross income average over the previous three (3) years.
This ends part one of our three-part series on “Leaving the 8(a) BD program.” On Friday we will continue with part two of our series.
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