Five 8(a) Program Annual Review Tips

TIP 1: Keep an eye on your Adjusted Net Worth. To remain economically disadvantaged while you are a participant in the SBA 8(a) Program the 8(a) applicant(s) Adjusted Net Worth must be less than $750,000 when you submit your 8(a) Annual review.

The algorithm used to determine Adjusted Net Worth for 8(a) Certification purposes is:

Adjusted Net Worth = Personal Assets – Personal Liabilities – [Equity in primary residence + value of ownership interest in applicant business + value of any IRA/401(k) or other retirement account that are subject to a penalty for early withdrawal]

If the applicant is married and the asset or liability is jointly held, you split the value 50/50. If the applicant is married and lives in a community property state, you only split assets and liabilities 50/50 if you have a transmutation or pre/post nuptial agreement that states otherwise.

You can easily determine your Adjusted Net Worth by using our adjusted net worth calculator.

Each applicant, and their spouse, must submit a separate SBA Form 413, Personal Financial Statement. Along with the SBA Form 413 you must also submit statements for each asset or liability supporting the amounts reported. These statements cannot be any older than 30 days at the time of 8a Application submission.

*Important* You cannot transfer an asset out of the applicant’s name for less than fair market value. Doing so will result in the full amount of the asset being re attributed back to the applicant.

TIP 2: Watch out for Excessive Withdrawals. Withdrawals are excessive if in the aggregate during any fiscal year of the Participant they exceed (i) $250,000 for firms with sales up to $1,000,000; (ii) $300,000 for firms with sales between $1,000,000 and $2,000,000; and (iii) $400,000 for firms with sales exceeding $2,000,000.

The term withdrawal includes, but is not limited to, the following: Cash dividends; distributions in excess of amounts needed to pay S Corporation, LLC or partnership taxes; cash and property withdrawals; payments to immediate family members not employed by the Participant; bonuses to officers; and investments on behalf of an owner. Although officers’ salaries are generally not considered withdrawals for purposes of this paragraph, SBA will count those salaries as withdrawals where SBA believes that a firm is attempting to circumvent the excessive withdrawal limitations through the payment of officers’ salaries. SBA will look at the totality of the circumstances in determining whether to include any specific amount as a withdrawal under this paragraph.

TIP 3: Watch your percentage of 8(a) vs Non 8(a) revenue earned as you enter the transitional stage of the 8(a) Program.

To ensure that Participants do not develop an unreasonable reliance on 8(a) awards, and to ease their transition into the competitive marketplace after graduating from the 8(a) program, Participants must make maximum efforts to obtain business outside the 8(a) program. Work performed by an 8(a) Participant for any Federal department or agency other than through an 8(a) contract, including work performed on orders under the General Services Administration Multiple Award Schedule program, and work performed as a subcontractor, including work performed as a subcontractor to another 8(a) Participant on an 8(a) contract, qualifies as work performed outside the 8(a) program.

During both the developmental and transitional stages of the 8(a) program, a Participant must make substantial and sustained efforts, including following a reasonable marketing strategy, to attain the targeted dollar levels of non-8(a) revenue established in its business plan. It must attempt to use the 8(a) program as a resource to strengthen the firm for economic viability when program benefits are no longer available.

Required non-8(a) business activity targets during transitional stage—(1) General. During the transitional stage of the 8(a) program, a Participant must achieve certain targets of non-8(a) contract revenue (i.e., revenue from other than sole source or competitive 8(a) contracts). These targets are called non-8(a) business activity targets and are expressed as a percentage of total revenue. The targets call for an increase in non-8(a) revenue over time.

Non-8(a) business activity targets. During their transitional stage of program participation, Participants must meet the following non-8(a) business activity targets each year:

Participant’s year in the transitional stage Non-8(a) business activity targets (required minimum non-8(a) revenue as a percentage of total revenue)
1 15
2 25
3 35
4 45
5 55

TIP 4: Make sure your financial statements breakout 8(a) and Non 8(a) Revenue.

Your annual financial statements, specifically your Profit & Loss Statement, must show a breakout of your revenue earned by any 8(a) contract revenue and any non 8(a) revenue. This is a common issue we see when we perform 8(a) Annual Reviews for our clients.

TIP 5: Ensure that you provide the correct type of prepared financials depending on your gross annual receipts.

Participants with gross annual receipts of more than $10,000,000 must submit to SBA audited annual financial statements prepared by a licensed independent public accountant.

Participants with gross annual receipts between $2,000,000 and $10,000,000 must submit to SBA reviewed annual financial statements prepared by a licensed independent public accountant.

Participants with gross annual receipts of less than $2,000,000 must submit to SBA an annual statement prepared in-house or a compilation statement prepared by a licensed independent public accountant, verified as to accuracy by an authorized officer, partner, limited liability member, or sole proprietor of the Participant, including signature and date

Need assistance with your 8(a) Annual Review? With 15 years and over 2,000 successful applications under our belt, we can assure you that your 8(a) Annual Review will be completed properly.

8(a) Annual Review Completion Service

This service is designed for the 8(a) Certified business who needs an expert to prepare all aspects of their required 8(a) Annual Review paperwork.

We work one-on-one with you to ensure that your 8(a) Annual Review is completed properly so you can continue to operate within the SBA 8(a) Program each year.

  • Our staff will gather and analyze all required data so you can turn your attention to “doing business” instead of “doing paperwork”.
  • We will complete an adjusted net worth analysis to ensure you will still be considered economically disadvantaged and also an adjusted gross income analysis if necessary.
  • We will advise you of any possible eligibility issues as well as remedies to any potential problems.
  • We will complete the online 8(a) Annual Review submission and the paper/supporting sections of your 8(a) Annual Review.
  • At the conclusion of this service your 8(a) Annual Update will be 100% ready to be submitted to the SBA. All electronic and paper documents will be prepared for you and packaged the way the SBA wants it.

 

 

 

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Top 10 8(a) Program Continued Eligibility Problems

1) Late or non-submission of 8(a) Annual Review documents. 

The most common eligibility problem 8(a) firms encounter is either the late or non-submission of required Annual Review documents. SBA is required to review each 8(a) firm’s program eligibility every year on the firm’s certification anniversary date. Your local SBA office will send a request for the required Annual Review documents and information shortly before the end of your program year which contains the date that your submission is due back to your Business Development Specialist (BDS). If it is not received by the due date, you will be sent a reminder and a second due date. If the information is not submitted by this second date, SBA’s rules & regulations require the SBA to start program termination proceedings against your firm. The termination process may result in the loss of your 8(a) certification. Once it is lost you cannot be certified in the program again. Since annual reviews are done every year on your anniversary date, you should be prepared for it and comply on time.

2) Late or non-submission of annual financial statements or failure to submit required type of statement based on sales level.  

Your year-end financial statements must be signed, dated and their accuracy verified by an authorized officer, partner, or sole proprietor of the concern. Firms with annual receipts of less than $2 million may submit statements prepared in-house, in accordance with “generally accepted accounting procedures” or have a compilation statement prepared by a qualified CPA or independent public accountant. Those firms with sales of more than $2 million and less than $10 million must provide reviewed statements, prepared by a qualified CPA or independent public accountant. Statements are due within ninety (90) days after the close of the company fiscal year. Those firms with total sales of $10 million and over are required to submit audited financial statements prepared by a CPA or independent public accountant. Those firms who will be submitting audited statements are allowed an additional 30 days due to the added complexity. The company’s sales figures on the Profit and Loss Statement must show the break-down of 8(a) and non-8(a) sales, if applicable. The submission of proper, year-end financial statements, (Balance Sheet and Profit and Loss Statements) is mandatory as a condition of 8(a) program participation, as noted in your signed 8(a) Participation Agreement. Firms who are delinquent in submitting annual financial statements are ineligible to receive 8(a) contract awards. In addition program termination proceedings may be initiated if financial statements are not received in this office by the required due date. Most 8(a) firms have calendar fiscal year end date (December 31). While the financial statement due date might correspond with the time that your accountant is doing your business & personal tax returns, there is no provision for any extensions to the financial statement submission date. Make sure that your CPA is aware of this mandatory 8(a) compliance requirement.

3) Failure to keep your BDS up to date on contact information changes, e.g. address, telephone number, e-mail address, etc.

8(a) firms must notify their BDS immediately upon making any changes to their contact information. Since they may be contacting you either via email, telephone, regular mail or certified mail, they must have accurate contact information for you. They are required by some of SBA’s regulations to use “certified mail, return receipt requested” to contact you regarding certain issues, such as Annual Reviews. Several firms have actually lost their 8(a) certification because they either didn’t notify SBA of their address change or they didn’t bother to pick up their certified mail at the post office.

Since the SBA may contact you  via email regarding the your Annual Review process, it is imperative that they have your proper email address and the SBA is not blocked by any SPAM filters.

4) Excessive compensation or withdrawals from the 8(a) concern.

Regarding the compensation of the owners of 8(a) firms, 13CFR 124.112 states the following: (d) Excessive withdrawals. (1) The term withdrawal includes, but is not limited to, the following: Cash dividends; distributions in excess of amounts needed to pay S Corporation, LLC or partnership taxes; cash and property withdrawals; payments to immediate family members not employed by the Participant; bonuses to officers; and investments on behalf of an owner. Although officers’ salaries are generally not considered withdrawals for purposes of this paragraph, SBA will count those salaries as withdrawals where SBA believes that a firm is attempting to circumvent the excessive withdrawal limitations though the payment of officers’ salaries. SBA will look at the totality of the circumstances in determining whether to include any specific amount as a withdrawal under this paragraph.

Withdrawals are excessive if during any fiscal year, they exceed (i) $250,000 for firms with sales up to $1,000,000; (ii) $300,000 for firms with sales between $1,000,000 and $2,000,000; and (iii) $400,000 for firms with sales over $2,000,000. The fact that a concern’s net worth has increased despite withdrawals that are deemed excessive will not preclude SBA from determining that such withdrawals were detrimental to the attainment of the concern’s business objectives or to its overall business development.

5) Failure to meet Competitive Business Mix targets.

To ensure that Participants do not develop an unreasonable reliance on 8(a) awards, and to ease their transition into the competitive marketplace after graduating from the 8(a) BD program, Participants must make maximum efforts to obtain business outside the 8(a) BD program. During both the developmental and transitional stages of the 8(a) BD program, a Participant must make substantial and sustained efforts, including following a reasonable marketing strategy, to attain the targeted dollar levels of non-8(a) revenue established in its business plan. You should use the 8(a) BD program as a resource to strengthen the firm for economic viability when 8(a) program benefits are no longer available. During the transitional stage of the 8(a) BD program, a Participant must achieve certain targets of non-8(a)contract revenue (i.e., revenue from other than sole source or competitive 8(a) contracts). These targets are called non-8(a) business activity targets and are expressed as a percentage of total revenue. The targets call for an increase in non-8(a)revenue over time. During their transitional stage of program participation, Participants must meet the following non-8(a) business activity targets each year:

Participant’s year in the   transitional stage

Non-8(a) business activity   targets (required minimum non-8(a) revenue as a percentage of total revenue)

1

15

2

25

3

35

4

45

5

55

The SBA will measure the Participant’s compliance with the applicable non-8(a) business activity target at the end of each program year in the transitional stage based on the Participant’s latest fiscal year-end total revenue. At the end of each year of participation in the transitional stage, the SBA will review the Participant’s total revenues to determine whether the non-8(a) revenues have met the applicable target. In determining compliance  the SBA will compare all 8(a) revenues received during the year, including those from options and modifications, to all non-8(a) revenues received during the year.

Consequences of not meeting competitive business mix targets. Any firm that does not meet its applicable competitive business mix target for the just completed program year will be ineligible for sole source 8(a) contracts in the current program year, unless and until the Participant corrects the situation. The SBA may initiate proceedings to terminate a Participant from the 8(a) BD program where the firm does not make good faith efforts to obtain non-8(a) revenues.

6) Failure of the person upon whom 8(a) eligibility is based to be the highest compensated individual in the firm.

13CFR 124.106 (3) allows non-disadvantaged individuals to participate in the management of an 8(a) concern but they MAY NOT receive compensation from the applicant or Participant in any form as directors, officers or employees, including dividends, that exceeds the compensation to be received by the highest officer (usually CEO or President). The highest ranking officer may elect to take a lower salary than a non-disadvantaged individual only upon demonstrating that it helps the applicant or Participant. You must obtain the prior written consent of the Director, Office of Business Development or designee before changing the compensation paid to the highest ranking

officer to be below that paid to a non-disadvantaged individual. See your BDS for further information or if you have questions on this matter.

7) Failure of the person upon whom 8(a) eligibility is based to devote full-time management to the 8(a) concern.

13CFR124.106 requires the following to maintain 8(a) eligibility:

(a)(1) An applicant or Participant must be managed on a full-time basis by one or more disadvantaged individuals who possess requisite management capabilities.

(2) A disadvantaged full-time manager must hold the highest officer position (usually President or Chief Executive Officer) in the applicant or Participant and be physically located in the United States.

(3) One or more disadvantaged individuals who manage the applicant or Participant must devote full-time to the business during the normal working hours of firms in the same or similar line of business.

(4) Any disadvantaged manager who wishes to engage in outside employment must notify the SBA of the nature and anticipated duration of the outside employment and obtain the prior written approval of the SBA. The SBA will deny a request for outside employment which could conflict with the management of the firm or could hinder it in achieving the objectives of its business development plan.

8) Failure to obtain prior SBA approval of ownership changes.

A Participant may change its ownership or business structure so long as one or more disadvantaged individuals own and control it after the change and the SBA approves the transaction in writing prior to the change. The decision to approve or deny a Participant’s request for a change in ownership or business structure will be made and communicated to the firm by the Director, Office of Business Development. The decision of the AA/8(a) BD is the final decision of the Agency. A decision to deny a request for change of ownership or business structure may be grounds for program termination where the change is made nevertheless. A change in ownership does not provide the new owner(s) with a new 8(a) BD program term.

9) Failure to Perform the Required Percentage of Work on an 8(a) Contract.

To assist the business development of Participants in the 8(a) BD program, an 8(a) contractor must perform certain percentages of work with its own employees. These percentages and the requirements relating to them are the same as those established for small business set-aside prime contractors, and are set forth in 13CFR125.6. A Participant must certify in its offer that it will meet the applicable percentage of work requirement both sealed bid and negotiated procurements. (a) In order to be awarded an 8(a) contract, the 8(a) concern must agree that:

(1) In the case of a contract for services (except construction), the concern will perform at least 50 percent of the cost of the contract incurred for personnel with its own employees.

(2) In the case of a contract for supplies or products (other than procurement from a non-manufacturer in such supplies or products), the concern will perform at least 50 percent of the cost of manufacturing the supplies or products (not including the costs of materials).

(3) In the case of a contract for general construction, the concern will perform at least 15 percent of the cost of the contract with its own employees (not including the costs of materials).

(4) In the case of a contract for construction by special trade contractors, the concern will perform at least 25 percent of the cost of the contract with its own employees (not including the cost of materials).

10) Failure to submit SBA form 1790 Representative Report.

13CFR124.601 requires each Participant to submit a semi-annually a written report to its assigned BOS that includes a listing of any agents, representatives, attorneys, accountants, consultants and other parties (other than employees) receiving fees, commissions, or compensation of any kind to assist such Participant in obtaining or seeking to obtain a Federal contract. The listing must indicate the amount of compensation paid and a description of the activities performed for such compensation.

For more information on the 8(a)BD Program, including the 8(a) Annual Review or 8(a) Compliance Service, please visit www.cloveer.com or call 813-333-5800.

How to write an Executive Summary for your 8a Business Plan

The Executive Summary is the most important section of your 8a business plan. It provides a concise overview of the entire plan along with a history of your company. This section describes the fundamental elements of your business, as well as what business you are in, why you are in it, and what you hope to accomplish. For example, describe your business in terms of where it has come from, where it is now, where you want it to go, and how you plan to get it there.  This section is important because it explains why you think your business idea will be successful.  This is a complete summary of your 8a business plan and should be the last section you write. After you’ve completed all the other details of your plan, you’ll be better able to summarize it.  1 to 2 pages is an appropriate length for the executive summary.

Here are some important elements to include in your Executive Summary:

  • The Mission Statement – The mission statement briefly explains the thrust of your business. It could be two words, two sentences, a paragraph, or even a single image. It should be as direct and focused as possible, and it should leave the reader with a clear picture of what your business is all about.
  • Date business began
  • Names of founders and the functions they perform
  • Number of employees
  • Location of business including branches or subsidiaries
  • Description of plant or facilities
  • Primary industry and NAICS code
  • Products manufactured/services rendered
  • Summary of company growth since the beginning, including financial or market highlights
  • Summary of future plans

With the exception of the mission statement, all of the information in the Executive Summary should be brief since the details will be provided further along in the plan.

For newly certified 8a companies, Cloveer provides professional assistance in preparing SBA acceptable 8a Business Plans.

What is an 8a Participation Agreement?

Every company that becomes 8a Certified with the SBA must sign a participation agreement.  The agreement is the same for all companies and by signing it, you are agreeing to abide by the 8(a) BD regulations, 13 C.F.R. § 124, which can be found at http://www.access.gpo.gov/nara/cfr/waisidx_07/13cfr124_07.html.

In addition, you will be agreeing to submit financial statements and tax returns on an annual basis.  For companies with gross annual receipts between $1M and $5M the financials must be reviewed by an independent qualified public accountant.  For companies with gross annual receipts over $5M, the financials must be audited by an independent qualified public accountant.

The participation agreement also provides a list of 26 items that will cause termination from the program. Three examples of occurrences that can cause termination of your company from the 8a program are:

  1. Failure by the concern to obtain prior written approval from SBA for any changes in ownership, business structure, management, or control.  Hiring a key officer without prior approval is an example of this.
  2. Failure by the concern to obtain prior SBA approval of any management agreement, joint venture agreement or other agreement relative to the performance of a section 8(a) subcontract.
  3. Failure by the concern to provide SBA with Annual Update reports as required.

An actual Participation Agreement including the complete list of conditions and causes for termination is available for viewing.  For expert assistance with maintaining 8a program compliance and annual reporting requirements, contact Cloveer.

The 8a Business Development Program?

The SBA 8a Business Development program was formed in 1968. The Small Business Administration is responsible for administrating the program. It got the 8(a) name from Section 8(a) of the Small Business Act. It is designed to assist small disadvantaged businesses compete within the US Economy.

A major benefit for 8a participants is access to competitive and sole source federal contracts. Each year billions of dollars of contracts are awarded to 8a Certified firms.

The 8a Business Development program focuses on providing the following:

  • Business Development support such as;
    • mentoring
    • procurement assistance
    • business counseling
    • training
    • financial assistance
    • bonding
    • management and technical assistance

Firms becoming certified by the SBA begin a nine year program term. On their annual certification day each year they must file an 8a annual update which the SBA reviews to determine if they still meet all of the 8a program requirements.

Certified firms may be awarded up to $100 million in 8a contracts throughout their nine year program participation.

The nine year program is divided into the developmental and transitional stage.

The developmental stage is the first four years of participation and helps participants overcome the economic disadvantage by providing business development support.

The transitional stage comprises the final 5 years and prepares the participants for leaving the program and competing outside of the 8a program.

You must apply to become an 8a participant and meet specific requirements. Some of the requirements are that the company must be owned and controlled by individuals who are socially and economically disadvantaged. Most individuals find the complexity of the rules and regulations for applying so tough they get assistance from a company who the expertise to prepare their 8a application, such as Cloveer.