How to compute average annual receipts for the SBA size standard, with a $45 million general contractor example

Before a contractor bids a federal small business set-aside, someone in the office certifies that the company is small. That person is usually the CFO or controller, and the test is a single figure called average annual receipts, compared against a dollar limit the Small Business Administration (SBA) sets for each industry code.

The rules are in Title 13 of the Code of Federal Regulations, which the eCFR shows as current through October 28, 2026. Section 121.104 defines receipts and the averaging period. Section 121.201 lists the limits, and section 121.404 sets the date the test applies. This post walks through each and then runs the numbers for a growing general contractor.

The limits for construction

SBA assigns a size standard to every six-digit NAICS code, the federal industry classification. For construction it is a ceiling on average annual receipts. The general contracting and heavy civil codes share one figure, and most specialty trades share a lower one.

The code that counts is the one the contracting officer puts on the solicitation. Section 121.404 says the company, with its affiliates, must qualify under the NAICS code assigned to the contract. For example, an electrical contractor that averages $30 million is over the $19.0 million limit for 238210, and it is still under the $45.0 million limit when a solicitation carries 236220.

What counts as receipts

Section 121.104 defines receipts as all revenue from any source, less returns and allowances. SBA generally reads them from the federal income tax return as “total income” plus “cost of goods sold,” and it relies on the return and any amendments filed by the date of self-certification.

The rule names a short list of exclusions: net capital gains or losses, sales taxes collected and remitted, transactions with affiliates, and pass-through amounts for a few agent industries. It then names items that stay in, and subcontractor costs are first on that list, along with reimbursed purchases, investment income and payroll taxes.

That matters most to a general contractor. For example, a GC that bills $57 million in a year and pays $38 million of it to subs reports $57 million of receipts for this test.

The averaging period

For federal contracting, a company with five or more completed fiscal years divides its total receipts over the most recent five by five. Section 121.104 sets out three other cases:

1. A company with fewer than five completed fiscal years divides its total receipts by the number of weeks in business and multiplies by 52. A firm with $60 million of receipts over 156 weeks averages $20.0 million.
2. A company with a short year inside the five-year window adds the short year to the four full years, divides by the total weeks and multiplies by 52.
3. For SBA’s Business Loan, Disaster Loan, Surety Bond Guarantee and SBIC programs, a company with three or more completed years may choose a three-year or a five-year average.

If the company has affiliates, section 121.104(d) adds each affiliate’s average annual receipts to its own. A company that acquires an affiliate during the window counts the acquired company’s receipts for the whole window.

When the test applies

Section 121.404 fixes the date. The company must qualify as of the day it submits its written self-certification with its initial offer that includes price. Once it wins a contract as a small business, the regulation says it is generally considered small for the life of that contract.

So the five-year window moves when a fiscal year closes. For a company on a calendar fiscal year, an offer priced in December 2026 uses 2021 through 2025. An offer priced in January 2027 uses 2022 through 2026. If the 2026 tax return is not filed yet, section 121.104 has SBA use the company’s books, audited statements or an affidavit for that year.

A worked example

The figures below are an example. A commercial general contractor on a calendar fiscal year bids federal work under NAICS 236220, where the limit is $45.0 million. It has no affiliates, and its receipts have grown each year.

Through 2026, the window runs from 2021 to 2025. Those five years total $215 million, the average is $43.0 million, and the company is small for 236220 by $2.0 million.

When 2026 closes, the $30 million from 2021 drops out and the $64 million from 2026 comes in. The five-year total rises to $249 million and the average to $49.8 million, which is over the limit for any offer priced after December 31, 2026.

For the 2022 to 2026 average to stay at $45.0 million, the five-year total could be no more than $225 million. The four years from 2022 to 2025 already hold $185 million, so 2026 receipts would have had to stay at $40 million or less, which is $17 million below 2025.

An affiliate changes the result as well. If the same company had a sister firm averaging $4.0 million, its average for offers priced in 2026 would be $47.0 million, over the limit a year earlier.

Subcontracting limits after award

A small business that wins a set-aside above the simplified acquisition threshold also agrees to limits on how much of the work it passes to firms that are not similarly situated. Under 13 CFR 125.6, a general construction prime may pay those firms no more than 85% of the amount the government pays it. A special trade prime may pay them no more than 75%. Cost of materials is excluded in both cases and does not count as subcontracted.

How to track this in your books

Keep a five-year receipts schedule with one row per fiscal year, taken from the tax return, and a row for each affiliate. Add the current year’s receipts to date from the general ledger, so the controller can see the next window before the year closes. The backlog in months post and the work-in-progress schedule already hold the revenue forecast that feeds that row.

Then list the federal bids expected in the next six months with the NAICS code on each solicitation and the date pricing is due. Flag any bid due after fiscal year end whose code’s limit is within reach of the projected average. The bid-hit ratio post covers how to tag bids by client type, and a federal set-aside flag fits in the same log. As a first step, pull the last five tax returns and compute this year’s average against the code you bid most often.