8A certification "two years exemption" explanation

Many new companies are interested in joining the 8a certification program in order to take advantage of federal exclusive sources and hold contracts. The average 8a company's federal income exceeds $4 million annually. Therefore, for start-ups, obtaining 8a certification can bring potential wealth to the company.

Enterprises and their owners must meet five categories in order to obtain 8a certification. 1. Social disadvantages, 2. Economic disadvantage, 3. The potential to successfully complete a federal contract, 4 no control issues, 5. Good moral quality. This article covers Qualification #3, the potential for successful completion of a federal contract.

A company 8a has applied several tests to prove its ability to successfully complete a federal contract. For a new company, the most challenging is the two-year business need. The company must conduct business for two years before being admitted to the 8a program. SBA will give up to the company, in this article, I will discuss how the SBA can view the applicant's three situations under given conditions.

When does the company need a two-year [8] certification exemption?

Whether you need two basic factors for a two-year exemption:
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  1. Has the two tax returns completed the tax cycle for a full 12 months, and is the applicable concern already open for 2 years?
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  2. Does the applicable concern generate business in the main NAICS code of the previous two years?

These two conditions must be met.

Sometimes you don't know if you need to complete a two-year exemption. The following is an example of a case study showing that the company should make a two-year exemption and when no exemption is needed.

Questions about SBA:

Before attempting a two-year exemption, $50,000, do you use any income guidelines that your company should have? $250,000? Suppose all other conditions are met?

Reply:

Yes, let's look at the income [there is no fixed amount because it depends on the industry], but we also look at where/who is the contract/revenue [more than 1 or 2 sources].

Scenario 1

Grade 1 - $0 in sales
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  Year 2 - $189,000
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  Year 3 - $369,000
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  May 4 - The owner finally gave up his other work and started working full time. Total sales for this business were $457,000 in the fourth year.
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  January 5th - Application time

No exemption required
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  This two-year exemption is not necessary because the company has generated revenue in the past two years. However; SBA will review the owner's management experience to confirm the likelihood of success.

Scenario 2

Year 1 - $100,000 in sales
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  Year 2 - Sales of $500,000
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  Grade 3 - $0 sales
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  Year 4 - New owner purchased $200,000 in sales in January
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  Grade 5 - January [application point]

Is an exemption required

In this case, a two-year exemption will be required. Because the company did not generate revenue for the past two years in its main NAICS code.

Scenario III

Year 1 - Sales Owner 1 [250%] $250,000, Owner 2 [30%], Owner 3 [30%] - Owner 1 is the President and signs all contracts with the highest revenue and controls business decisions.
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  Year 2 - Sales of $500,000
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  Year 3 - Sales of $500,000
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  Year 4 - Sales of $500,000
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  December 5 - Owner 1 purchases owner 2 and becomes 70% owner. Sales are $500,000.
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  January 6th - [application time]

No exemption required

There is no need for a two-year exemption because the company has existed for more than two years. In this case, the SBA will closely review the legal documents. These documents must indicate that the owner has served as the President [the highest official] for a period of time and that Owner 1 has signed the contract for a period of time on behalf of the company. SBA will also pay close attention to all potential control issues to ensure that no one else controls the owner.

When a two-year exemption is required, is usually a winning scene?
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  In general, SBA likes to see at least $150,000 in sales from the start of the company.
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  2. At least 1 tax return containing the income and the profit of the return.
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  3. Business owners must have a certain degree of business experience and acumen.
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  4. 51% or more of the owners must work full time.

8a certification is one of the best ways for small businesses to develop through federal contracts. If your company has the ability to obtain this certification, it is highly recommended that you analyze the company's sales potential.

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