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How to calculate your business size for SBA and federal contracts

Updated September 2026

Most small businesses never do this math until a competitor protests. It is worth doing first. The rules in 13 CFR part 121 are short and stricter than most owners expect: you cannot net out subcontractor costs, part-timers count as whole people, and a sister company owned by your spouse may count as part of you.

Which measure applies to you: receipts or employees?

You do not choose. Each NAICS code has one size standard, and it is either a receipts figure in millions of dollars or an employee count. SBA publishes the current list in the table at 13 CFR 121.201, and its Size Standards Tool will look up the number for a given code. Services are generally measured by receipts; manufacturing and many other industries by employees.

The code that matters for any particular bid is the one the contracting officer puts on the solicitation. Under 13 CFR 121.402, every solicitation carries a single NAICS code and a single size standard, chosen to describe the principal purpose of what is being bought, and the standard in effect on the date the solicitation is issued applies. So a firm can be small for one bid and other than small for the next, without anything about the firm changing. If you have not yet settled which codes to list, our guide to finding your NAICS code walks through that choice.

One special case catches resellers. If a solicitation for supplies carries a manufacturing code and you are offering a product you did not make yourself, you are a nonmanufacturer. Section 121.402 says you are then deemed small if you have 500 or fewer employees and meet the nonmanufacturer rule in 121.406(b), whatever the manufacturing code's own standard is.

How do you calculate average annual receipts?

The formula is in 13 CFR 121.104. For a business that has completed five or more fiscal years, it is simple: add up total receipts for the most recently completed five fiscal years, then divide by five. "Completed" matters. The year you are in right now does not count, however good or bad it is going.

SBA starts from your federal income tax returns. Receipts are generally "total income" (or "gross income" for a sole proprietorship) plus "cost of goods sold", as those lines are defined on the IRS forms: Form 1120 for C corporations, 1120S for S corporations, 1065 for partnerships, Schedule C of Form 1040 for sole proprietors, and whichever of those an LLC files. SBA relies on the returns, including amendments, that you filed with the IRS on or before the date you self-certify. If a return for a year in the period has not been filed yet, SBA uses your books, audited statements or a sworn affidavit instead.

A worked example, with made-up numbers. A firm whose last five completed fiscal years brought in $3.1 million, $4.2 million, $5.0 million, $6.3 million and $7.4 million has total receipts of $26.0 million. Divided by five, its average annual receipts are $5.2 million. That is the figure it compares to the size standard, even though its most recent year alone was $7.4 million. Averaging over five years is why a firm that is growing fast can stay small for a while, and why one bad year does not make a large firm small.

What if you have been in business less than five years?

Then SBA annualizes. Under 121.104(c)(2), you take total receipts for the whole time you have been in business, divide by the number of weeks you have been in business, and multiply by 52.

Example: a firm has been operating for 130 weeks and has taken in $9.1 million in total. $9.1 million divided by 130 is $70,000 a week. Multiplied by 52, that gives average annual receipts of $3.64 million.

A short tax year inside the five-year window, after changing your fiscal year end for instance, is handled the same way: weeks, then times 52. The three-year averaging option you may have read about applies only to SBA loan, surety bond and SBIC programs, not to contracting.

What can you subtract from receipts, and what can't you?

This is where owners most often get it wrong. The regulation defines receipts broadly: all revenue "in whatever form received or accrued from whatever source", including sales, interest, dividends, rents, royalties, fees and commissions, reduced by returns and allowances. It then lists the only things you may leave out:

• Net capital gains or losses.
• Taxes you collected from customers and passed on to a taxing authority, such as sales tax, if they were included in gross or total income. Taxes levied on your own business or employees stay in.
• Proceeds from transactions between your business and its own domestic or foreign affiliates.
• Amounts collected for someone else by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.

Everything else stays in. The regulation names the usual candidates and rules them out: subcontractor costs, reimbursements for purchases you make at a customer's request, investment income, and employee-based costs such as payroll taxes "may not be excluded from receipts." A prime contractor that passes 60 percent of a contract through to subcontractors still counts 100 percent of what the government paid it.

How do you count employees?

The rules are in 13 CFR 121.106. SBA counts every individual you employ "on a full-time, part-time, or other basis." That explicitly includes people you get from a temporary employee agency, a professional employer organization (PEO) or an employee leasing company. SBA looks at the totality of the circumstances, including the IRS tests, to decide who is an employee. Unpaid volunteers are not counted.

The calculation is an average of your headcount for each pay period over the preceding completed 24 calendar months. Part-time and temporary employees count the same as full-time: a person working ten hours a week is one employee, not a quarter of one. If you have been in business less than 24 months, you average over the pay periods you have had.

If you run payroll every two weeks, that is about 52 pay periods. Add up the people on each payroll, including leased or agency staff, and divide by the number of pay periods.

Why do affiliates change the answer?

Because SBA does not measure your company on its own. Under 13 CFR 121.103, it counts the receipts or employees of your business and all of its domestic and foreign affiliates, whether or not those affiliates are organized for profit. Your size is your own average plus each affiliate's average.

Businesses are affiliates when one controls or has the power to control the other, or when a third party controls both. It does not matter whether the control is actually used, only that the power exists. SBA looks at the whole picture, and it can find affiliation from several ties together even when no single one would be enough. The main routes in the regulation are:

• Ownership. A person or firm that owns 50 percent or more of your voting stock, or a block that is large compared with the other blocks, controls you. Stock options, convertible securities and agreements to merge are treated as if they had already been exercised.
• Negative control. A minority owner who can block a quorum or ordinary board action can control you, even without a majority. Blocking rights limited to extraordinary events, such as selling the company, merging, dissolving or filing for bankruptcy, do not count.
• Common management. If the officers, directors or managing members who control your firm also control another one, the two are affiliated.
• Family ties. Firms owned or controlled by spouses, parties to a civil union, parents, children and siblings are presumed affiliated if they do business with each other, such as subcontracting, joint ventures, loans, or shared equipment, locations or employees. You can rebut it by showing "a clear line of fracture" between the firms.
• Economic dependence. SBA may presume affiliation if you got 70 percent or more of your receipts from one other business over the previous three fiscal years. A new firm with only a few contracts can usually rebut this, and so can a firm that is free to sell the same things to other buyers.
• The newly organized concern rule. If people from an existing firm start a new firm in the same or a related field and the old firm feeds it contracts, money, bonding or other help, the two may be affiliated.
• Joint ventures and ostensible subcontractors. A joint venture can submit offers for two years from its first award before its partners are treated as affiliated. And a small prime that relies on a large subcontractor to perform the "primary and vital requirements" of a contract, or is unusually reliant on it, can be found affiliated with that subcontractor for that contract.

There are exceptions: an SBA-approved mentor-protégé agreement does not by itself make the two firms affiliates, tribally and ANC-owned firms are not affiliated with their owners, and leasing staff from a PEO does not make you its affiliate.

What about affiliates you bought or sold during the five years?

Timing rules in 121.104(d) and 121.106(b)(4) decide this, and they are counterintuitive. If you acquired an affiliate, or were acquired, during the measuring period or before you self-certified, you include that affiliate's receipts or employees for the entire period, not just from the date of the deal. The reverse also applies: if an affiliation ended before the date your size is measured, you leave the former affiliate out for the entire period.

Divisions are different. If you bought a segregable division of another company, you do not count that division's receipts from before the purchase. If you sold one, its receipts and employees stay in your numbers for the period.

And under 13 CFR 121.105, a new entity that has substantially the same assets or liabilities as a predecessor is not treated as a fresh start. SBA counts the predecessor's receipts and employees too. Reorganizing into a new LLC does not reset the clock.

On what date is your size measured?

For a contract, it is the date you submit a written self-certification that you are small, as part of your initial offer or response that includes price. That is the rule in 13 CFR 121.404(a). If you win as a small business, you are generally treated as small for the life of that contract, even if you grow past the standard during performance. A follow-on or renewal contract is a new action, measured again from its own offer date.

A few variations are worth knowing:

• GSA Schedule. For orders and BPAs under a GSA Multiple Award Schedule contract, size is set as of your initial offer for the Schedule contract itself. Our page on proposed GSA Schedule ordering rules covers how set-aside orders work on Schedules.
• Orders with recertification. On a multiple-award contract that was set aside, a contracting officer can ask for size recertification on a particular order, and then your size is measured as of your offer for that order.
• SBA certifications. For 8(a), HUBZone, WOSB and SDVOSB certification, you must be small as of the date of your application. For 8(a) that is under the size standard for your primary NAICS code; for the others, under any NAICS code listed in your SAM.gov profile.
• Recertification after a deal. Under 13 CFR 125.12, you must recertify your size and status within 30 calendar days after a merger, acquisition or sale that changes controlling interest. On contracts longer than five years, including options, you recertify within 120 days before the end of year five and before each later option.

Where does your size go in SAM.gov?

You do not get a size certificate from SBA for ordinary small business set-asides. You self-certify, NAICS code by NAICS code, in the Representations and Certifications section of your SAM.gov registration, and you confirm the numbers each time you bid. Whatever you represent there has to rest on the averages described above, including affiliates, not on last year's revenue alone. Our page on reps and certs in SAM.gov shows where the fields are.

Update those figures when a new fiscal year closes, and when you acquire or lose an affiliate. Updating your own SAM.gov record is free. Anyone charging a fee to "recertify your size" in SAM.gov is selling you an edit you can make yourself at sam.gov, which is one of the patterns on our SAM.gov scams page.

What happens if you get it wrong?

Size is policed mainly by competitors. Another offeror, the contracting officer or SBA can file a size protest against an apparent winner on a set-aside, and the windows are short. For a sealed-bid buy, 13 CFR 121.1004 gives other bidders until close of business on the fifth business day after bid opening. SBA then makes a formal size determination, using the same rules set out above, and a firm found other than small loses eligibility for that set-aside award.

The practical defense is to keep a short worksheet: your five completed fiscal years of receipts straight from the filed returns, your pay-period headcounts for the last 24 months, and a list of every business that shares an owner, officer or family member with yours, with a note on whether you do business with it. If a protest comes, the file already exists.

Will the numbers change soon?

The method described on this page is the current rule. What may change is the size standards themselves. On August 20, 2026, SBA proposed replacing its table of about 1,000 standards with 338 new ones, most of them far higher, and moving construction from receipts to employee counts. Comments on that proposal are due November 20, 2026, and nothing changes until a final rule takes effect. Our explainer on SBA's proposed new size standards has the details and the current and proposed numbers for common contracting codes. The proposal changes the line you are measured against; it does not change how you calculate your own receipts or headcount. Set-asides still depend on that result, as our page on set-asides and the Rule of Two explains.

Key facts

• Receipts: last 5 completed fiscal years, divided by 5 (13 CFR 121.104). Under 5 years: total divided by weeks in business, times 52.
• Employees: average across all pay periods in the preceding 24 completed calendar months; part-time and temporary count the same as full-time (13 CFR 121.106).
• Affiliates: always added in, domestic and foreign (13 CFR 121.103).
• Measured: on the date of your self-certification with your initial offer including price (13 CFR 121.404).
• Nonmanufacturers on supply buys: small at 500 or fewer employees, if they meet the nonmanufacturer rule (13 CFR 121.402).
• Recertify: within 30 days after a change of control; on long contracts, before the end of year five (13 CFR 125.12).
• Cost to self-certify in SAM.gov: $0.

This page summarizes 13 CFR parts 121 and 125 as published on eCFR in September 2026. Confirm the size standard for your NAICS code at sba.gov and in each solicitation, and confirm your registration details at sam.gov. For a specific affiliation question, ask SBA or a qualified adviser before you certify.

Independent information, not legal advice. ZeroGov is not SBA, not SAM.gov and not the U.S. government.