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What is a “Small Business”? The Time is Now for Solutions

What is a “Small Business”? The Time is Now for Solutions. Presenter: Stephen Kong, Esq. The Kong Firm PLLC.

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What is a “Small Business”? The Time is Now for Solutions

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  1. What is a “Small Business”?The Time is Now for Solutions Presenter: Stephen Kong, Esq. The Kong Firm PLLC Small Business Size Standards Solutions Summit March 4, 2011

  2. The Stars are Aligned for Reform1. Stagnant Economy  Small Businesses = Jobs2. Fed Government Budget Crisis Small businesses provide cost-effective, high-quality work agencies, who must “do more with less,” desperately need 3. Administration with public commitment to revaluation of size standards Concrete proposals create accountability Small Business Size Standards Solutions Summit March 4, 2011

  3. Reform: What Are We Looking For?Need solutions that are realistic and comprehensive, provide small businesses with a simplified methodology for determining their status, and can overcome the obstacles of history, politics and self-interest. Small Business Size Standards Solutions Summit March 4, 2011

  4. Solutions: The Philosophical Debate—How Small is Small?Small, small businesses vs. “large” small businesses Traditional small biz: “How can a firm with 1,000 employees be small?”“How can a small biz with 10 people compete with a small biz with 1,000 employees?”  Mid-tier small biz: “How can you compare the IT industry to retail?“How can a small, small business handle the work for a $100M contract? Small Business Size Standards Solutions Summit March 4, 2011

  5. Solutions: Scope—What Do We Change and How Far Do We Go?--Interaction of NAICS code definition reform and size standards reform --Explore dual size standards for Federal procurement and Federal loan programs--Revaluate the SBA’s anchor size standards and fixed levels within each industry Small Business Size Standards Solutions Summit March 4, 2011

  6. Solutions: Implementation—How to Maximize the Effectiveness and Minimize the Harm of Reform --SBA Statutory vs. SBA Regulatory Reform (other changes, such as NAICS reform, will require amending additional statutes/regulations) --How to protect small businesses that will become “other than small” under new standards? limited grandfathering “growth” factor--Use of pilot programs with specific industries Small Business Size Standards Solutions Summit March 4, 2011

  7. Solutions: Sample Proposals--Springboard for Discussion--Size standards based on firm’s number of employees for all industrial classifications  Positives: no need for inflation adjustments; revenue-based standards hurt contractors in supply/ value added reselling that can rapidly reach revenue limits but only attain small profit margins Negatives: encourages subcontracting; small businesses in services/retail industries would be harmed due to large staffs of seasonal/part-time employees Small Business Size Standards Solutions Summit March 4, 2011

  8. Solutions: Sample Proposals--Springboard for Discussion (cont.)--Separate size standards for firms that do business with the Federal Government  Positive: Appropriately groups similar entities together by recognizing that government contractors under different constraints than those that focus on private sector work (e.g., limited by government requirements on submission of G&A budgets) Negative: where do you draw the line when label a firm a government contractor (e.g., how many contracts, for what $ value qualifies?) Small Business Size Standards Solutions Summit March 4, 2011

  9. Solutions: Sample Proposals--Springboard for Discussion (cont.)--Size standards for all industries established at certain % of size of dominant firms in industry  Positives: predictability; provides tremendous boost to small businesses about to head into full-and-open competition with billion dollar companies  Negatives: without strong justification, % determination can be attacked as arbitrary; can result in extremely large companies being designated “small” Small Business Size Standards Solutions Summit March 4, 2011

  10. Solutions: Example Proposals--Springboard for Discussion (cont.)--Focus on industry classifications: place each into one of three groups  Concentrated industries: highly unequal distribution of sales among firms in the industry Competitive: display more equal distribution of sales, and average firm relatively small when measured by sales or employees Mixed: does not meet criteria of two categories above, with 4 largest firms accounting for 20-50% of industry sales--Grouping will determine how that size standard will be handled (e.g., simply exclude dominant players, set low, set high, etc.)--Both praised and villified when proposed in 1980 Positive: a comprehensive rationale based on industry competitiveness, as opposed to a piecemeal approach Negative: probable net effect of reducing number of firms classified as small Small Business Size Standards Solutions Summit March 4, 2011

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