example of business plan for sole proprietorship

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How to Write a Business Plan for a Sole Proprietorship

Starting your own business as a sole proprietor is an exciting journey, offering unparalleled flexibility and control over your professional destiny. Yet, navigating this path successfully hinges on having a clear, well-structured business plan. This essential document serves as your roadmap, outlining your vision, strategy, and the practical steps needed to bring your business to life. Here’s how to craft a business plan that lays the groundwork for your sole proprietorship's success.

Key Components of a Sole Proprietorship Business Plan

A robust business plan for a sole proprietorship encompasses several critical sections:

Executive Summary: Your executive summary should succinctly encapsulate your business concept, target market, and competitive advantages. This section is crucial as it sets the stage for the detailed plan.

Company Description: Offer an in-depth overview of your business, including its structure, the products or services you provide, and your overarching goals. This section lays out the essence of your business and its purpose.

Market Analysis: Conduct a comprehensive analysis of your target audience and competitors. This research is essential for carving out your niche in the market and developing strategies to serve your customers effectively.

Organization and Management: Describe your business's organizational structure and any external support, such as freelancers or consultants, you plan to utilize. This section outlines how your business will operate and scale.

Marketing and Sales Strategy: Detail your approach for attracting and retaining customers. This includes your marketing channels, promotional tactics, and sales processes.

Service or Product Line: Clearly explain what you're offering, focusing on the benefits to your customers and why there's a demand for your product or service.

Financial Plan: Include comprehensive financial projections, such as revenue forecasts, cash flow statements, and a break-even analysis. This section is vital for understanding the financial viability and planning for profitability.

example of business plan for sole proprietorship

Tailoring Your Plan to a Sole Proprietorship

Emphasize Personal Branding: As a sole proprietor, your personal brand is intrinsically linked to your business. Your plan should reflect how your personal strengths and network contribute to your business's unique value.

Build in Flexibility: One of the strengths of a sole proprietorship is its ability to adapt quickly. Your business plan should include flexible strategies that allow you to pivot in response to market demands or challenges.

Utilizing Resources and Tools

In the journey of drafting a comprehensive business plan for your sole proprietorship, leveraging the right tools and resources can streamline the process and enhance the quality of your plan. Here are two crucial areas where the right resources can make a significant difference:

Recommended Tools and Software

The market is replete with tools and software designed to simplify the business planning process, from formulating your executive summary to projecting your financials. Utilizing these can save you time, provide structure, and even offer insights you might not have considered. Some top recommendations include:

Business Plan Software: Platforms like Plannit AI or Bizplan offer guided experiences through the planning process, with templates and financial forecasting tools that make it easier to create a professional plan.

Financial Modeling Tools: Software such as Excel or Google Sheets, with templates for cash flow statements, profit and loss forecasts, and break-even analysis, can help you craft detailed financial projections.

Market Research Resources: Tools like Statista or Google Trends can provide valuable data on market trends and consumer behavior, informing your market analysis section.

Project Management Apps: Applications like Trello or Asana can help you organize your business planning process, set deadlines, and track progress.

Seeking Professional Advice

While tools and software can streamline the planning process, the insight and guidance from experienced professionals can be invaluable. Consulting with financial advisors, business mentors, or industry experts can offer several benefits:

Financial Planning: A financial advisor can help you create realistic financial projections, advise on funding strategies, and identify potential financial pitfalls.

Business Strategy: Business mentors or consultants with experience in your industry can offer strategic advice, critique your business model, and suggest ways to enhance your competitive advantage.

Legal and Regulatory Guidance: For questions about the legal structure of your sole proprietorship, intellectual property, or regulatory compliance, consulting with a legal expert is essential.

By combining the power of the right tools and software with the wisdom and experience of professional advisors, you can create a business plan that not only lays a strong foundation for your sole proprietorship but also positions it for long-term success and growth.

Common Pitfalls to Avoid in Your Sole Proprietorship Business Plan

Creating a business plan for a sole proprietorship is a critical step in setting up your business for success. However, even the most diligent entrepreneurs can fall into common traps that potentially hinder their progress. Being aware of these pitfalls can help you navigate your planning process more effectively and set a solid foundation for your business growth. Here are key mistakes to avoid:

1. Overlooking Detailed Market Research

One of the most significant oversights in business planning is insufficient market research. Understanding your target market's needs, preferences, and behaviors is crucial for tailoring your products or services effectively. Moreover, a deep dive into competitor analysis allows you to identify gaps in the market you can exploit. Avoid making assumptions without data to back them up, and invest time in gathering insights that will inform your business strategies.

2. Underestimating Financial Needs

Many sole proprietors underestimate the capital required to start and sustain their business until it becomes profitable. This can lead to cash flow problems, which are a common reason for business failure. When drafting your financial plan, include detailed projections for startup costs, operating expenses, and a buffer for unexpected costs. It's better to overestimate your financial needs and have surplus funds than to find yourself in a financial bind.

3. Neglecting a Marketing and Sales Strategy

Assuming that your product or service will sell itself is a critical mistake. A comprehensive marketing and sales strategy is essential for attracting and retaining customers. This strategy should outline your target market, marketing channels, promotional tactics, and sales process. Without a clear plan for how you will reach your customers and convince them to buy from you, even the best business ideas can flounder.

4. Ignoring the Need for Flexibility and Adaptability

The business landscape is constantly changing, and what works today may not work tomorrow. Your business plan should not be so rigid that it cannot accommodate changes in the market, customer preferences, or new opportunities. Incorporate flexibility into your plan, allowing you to pivot or adjust your strategies as necessary to respond to unforeseen challenges or take advantage of new trends.

5. Skipping Professional Advice

Even if you're a seasoned expert in your field, seeking advice from financial advisors, legal consultants, or business mentors can provide valuable insights you might have missed. These professionals can help you identify potential flaws in your plan and offer solutions you hadn't considered. Skipping this step could mean overlooking crucial aspects of your business that could lead to problems down the line.

A well-crafted business plan is your roadmap to success as a sole proprietor, but it's essential to be mindful of common pitfalls that can derail your efforts. By conducting thorough market research, accurately estimating your financial needs, developing a solid marketing and sales strategy, maintaining flexibility, and seeking professional advice, you can avoid these mistakes and build a strong foundation for your business. Remember, the goal is not just to start a business but to sustain and grow it into a successful venture.

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Business Plan for Sole Proprietor

Published Jul.02, 2024

Updated Jul.03, 2024

By: Alex Silensky

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Table of Content

A sole proprietorship is the simplest and most common form of business ownership, where a single individual owns and operates the business. Creating a business plan as a sole proprietor is essential for setting a clear direction, attracting potential investors, and managing your business effectively. This comprehensive guide will provide a detailed roadmap for developing a robust business plan for a sole proprietor, covering key components such as market analysis, business structure, marketing strategies, financial projections, and more.

Understanding Sole Proprietorship

A sole proprietorship is a business owned and run by one person, with no legal distinction between the owner and the business entity. This form of ownership offers several advantages, including simplicity, full control over decisions, and straightforward tax filing. However, it also comes with personal liability for business debts and obligations. Understanding these aspects is crucial for anyone looking to start and successfully run a sole proprietorship.

Market Evaluation

Before diving into the specifics of your business plan, it is essential to conduct a thorough market evaluation. Understanding the market dynamics, customer needs, and competitive landscape will help you make informed decisions and identify opportunities for growth.

Insights into the Sole Proprietorship Industry

The sole proprietorship industry encompasses a wide range of businesses, from freelance services and small retail shops to independent consultants and tradespeople. According to the U.S. Small Business Administration, sole proprietorships make up about 73% of all businesses in the United States. This prevalence underscores the importance of a well-crafted business plan to navigate the competitive landscape and achieve long-term success.

Benefits of Writing a Business Plan for Sole Proprietors

Writing a business plan offers numerous benefits for sole proprietors. It provides a clear roadmap for your business, helping you to set realistic goals, allocate resources effectively, and track progress. A well-structured business plan can also attract investors and lenders by demonstrating that you have a viable business idea and a solid strategy for achieving success. Additionally, it can help you identify potential challenges and develop contingency plans to address them.

Key Components of a Business Plan for Sole Proprietor

A comprehensive business plan for a sole proprietor should include the following key components:

Executive Summary

The executive summary is a concise overview of your business plan, highlighting the main points and objectives. It should provide a snapshot of your business, including your mission statement, product or service offerings, target market, and financial goals. Although it appears first in the business plan, it is often written last, after you have detailed all other sections.

Business Description

The business description provides an in-depth look at your business. Describe your business, including its name, location, and the products or services you offer. Explain what makes your business unique and how it addresses a specific need or gap in the market. Include details about your business structure, such as your legal name, form of ownership, and any relevant licenses or permits.

Conducting a market analysis involves researching your industry, target market, and competitors. Identify your target market’s demographics, preferences, and buying behavior. Analyze industry trends and growth projections, and assess the competitive landscape by identifying your main competitors, their strengths and weaknesses, and your competitive advantage.

Organization and Management

As a sole proprietor, you may be the sole decision-maker, but it’s still important to outline your management structure. Describe your role and responsibilities, and include any plans for hiring employees or working with contractors. Detail your business’s organizational structure, including any key advisors or mentors who provide guidance and support.

Products and Services

Provide a detailed description of the products or services you offer. Explain the benefits and features of each product or service, and highlight what sets them apart from competitors. If applicable, discuss your product development process, any intellectual property protections, and your plans for future product or service expansions.

Marketing and Sales Strategy

Your marketing and sales strategy outlines how you plan to attract and retain customers. Describe your pricing strategy, promotional activities, and sales tactics. Discuss your brand positioning, target audience, and marketing channels you will use to reach your customers. Include details about your sales process, customer service approach, and any plans for loyalty programs or referral incentives.

Financial Projections

Financial projections are a crucial part of your business plan, providing a forecast of your business’s financial performance. Include projected income statements, cash flow statements, and balance sheets for at least the next three to five years. Provide a break-even analysis to determine when your business will become profitable. Discuss any funding requirements, potential sources of financing, and your strategy for managing expenses and revenue growth.

Sample Business Plan for Sole Proprietor

To help you get started, here is a sample outline of a business plan for a sole proprietor:

Brief overview of the business
Mission statement
Key products or services
Target market
Financial goals
Business name and location
Description of products or services
Unique value proposition

Market Analysis

Industry overview
Target market demographics
Competitive analysis
Owner’s role and responsibilities
Organizational structure
Detailed description of products or services
Benefits and features
Plans for future offerings
Pricing strategy
Promotional activities
Sales tactics
Projected income statements
Cash flow statements
Balance sheets
Break-even analysis
Funding requirements

Business Plan Template for Sole Proprietor Design Business

For those in the design industry, creating a tailored business plan can help you focus on your unique strengths and market opportunities. Your plan should highlight your design philosophy, portfolio of work, and target market. Emphasize your expertise in specific design areas, such as graphic design, interior design, or web design, and outline your strategy for attracting clients through online portfolios, social media, and networking events.

How to Write a Small Business Plan for Handyman Sole Proprietor

Writing a business plan for a handyman business involves detailing the services you offer, your target market, and your pricing strategy. Highlight your skills and experience, and explain how you will market your services to homeowners, property managers, and businesses. Include information about your tools and equipment, any necessary certifications or licenses, and your plans for expanding your service offerings.

Sole Proprietorship Business Plan Example

An example business plan for a sole proprietorship might be a freelance graphic designer. The plan would include a description of the services offered, such as logo design, branding, and marketing materials. The market analysis would identify target clients, such as small businesses and startups, and analyze competitors. The marketing strategy might involve showcasing a portfolio on a professional website, leveraging social media, and networking at industry events. Financial projections would include expected revenue from client projects, expenses for software and marketing, and break-even analysis.

Creating a Business Plan Template Free

Many online resources offer free business plan templates that can be customized to fit your specific needs. Websites like HubSpot , Wrike , and Shopify provide templates and guides to help you create a comprehensive business plan. These templates typically include sections for the executive summary, business description, market analysis, organization and management, products and services, marketing and sales strategy, and financial projections.

Form of Ownership in Business Plan

When detailing the form of ownership in your business plan, clearly state that your business is a sole proprietorship. Explain why this structure is advantageous for your business, such as simplicity, full control over decisions, and ease of tax filing. Acknowledge the potential downsides, such as personal liability for business debts, and outline any measures you will take to mitigate these risks.

Business Plan LLC vs. Sole Proprietorship

While this guide focuses on sole proprietorships, it’s important to understand the differences between a sole proprietorship and a limited liability company (LLC). An LLC provides limited liability protection, meaning your personal assets are protected from business debts and lawsuits. However, LLCs require more paperwork, ongoing compliance, and fees compared to sole proprietorships. When choosing the right structure, consider your business’s specific needs, potential risks, and growth plans.

A well-crafted business plan is essential for the success of a sole proprietorship. It serves as a roadmap for your business, helping you set clear goals, attract investors, and manage your operations effectively. By conducting thorough market research, defining your business structure, and developing detailed financial projections, you can create a robust business plan that positions your sole proprietorship for long-term success.

Get Started with OGS Capital Today

Ready to take the next step in your business journey? Start developing your business plan today to set a clear path for your sole proprietorship. For professional guidance and a customized business plan, get started with OGS Capital today. Your dedication to planning and preparation will lay the foundation for your business’s success. Start now and turn your business dreams into reality!

Frequently Asked Questions

What type of business is best for sole proprietorship?

A sole proprietorship is ideal for small businesses with low liability risks and simple operations. It suits freelance services, consulting, retail shops, and trades like handymen or graphic designers. These businesses benefit from easy setup, full control, and straightforward tax filing. However, high-risk businesses may require additional liability protection not offered by sole proprietorships.

How to write a business plan for a sole trader?

To write a business plan for a sole trader, start with an executive summary outlining your business goals and services. Include a detailed business description, market analysis, and competitor review. Define your marketing and sales strategies, organizational structure, and financial projections. Clearly state your form of ownership and address how you will manage personal liability and risks.

OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.

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How to Write a Business Plan in 9 Steps (+ Template and Examples)

Every successful business has one thing in common, a good and well-executed business plan. A business plan is more than a document, it is a complete guide that outlines the goals your business wants to achieve, including its financial goals . It helps you analyze results, make strategic decisions, show your business operations and growth.

If you want to start a business or already have one and need to pitch it to investors for funding, writing a good business plan improves your chances of attracting financiers. As a startup, if you want to secure loans from financial institutions, part of the requirements involve submitting your business plan.

Writing a business plan does not have to be a complicated or time-consuming process. In this article, you will learn the step-by-step process for writing a successful business plan.

You will also learn what you need a business plan for, tips and strategies for writing a convincing business plan, business plan examples and templates that will save you tons of time, and the alternatives to the traditional business plan.

Let’s get started.

What Do You Need A Business Plan For?

Businesses create business plans for different purposes such as to secure funds, monitor business growth, measure your marketing strategies, and measure your business success.

1. Secure Funds

One of the primary reasons for writing a business plan is to secure funds, either from financial institutions/agencies or investors.

For you to effectively acquire funds, your business plan must contain the key elements of your business plan . For example, your business plan should include your growth plans, goals you want to achieve, and milestones you have recorded.

A business plan can also attract new business partners that are willing to contribute financially and intellectually. If you are writing a business plan to a bank, your project must show your traction , that is, the proof that you can pay back any loan borrowed.

Also, if you are writing to an investor, your plan must contain evidence that you can effectively utilize the funds you want them to invest in your business. Here, you are using your business plan to persuade a group or an individual that your business is a source of a good investment.

2. Monitor Business Growth

A business plan can help you track cash flows in your business. It steers your business to greater heights. A business plan capable of tracking business growth should contain:

The business goals
Methods to achieve the goals
Time-frame for attaining those goals

A good business plan should guide you through every step in achieving your goals. It can also track the allocation of assets to every aspect of the business. You can tell when you are spending more than you should on a project.

You can compare a business plan to a written GPS. It helps you manage your business and hints at the right time to expand your business.

3. Measure Business Success

A business plan can help you measure your business success rate. Some small-scale businesses are thriving better than more prominent companies because of their track record of success.

Right from the onset of your business operation, set goals and work towards them. Write a plan to guide you through your procedures. Use your plan to measure how much you have achieved and how much is left to attain.

You can also weigh your success by monitoring the position of your brand relative to competitors. On the other hand, a business plan can also show you why you have not achieved a goal. It can tell if you have elapsed the time frame you set to attain a goal.

4. Document Your Marketing Strategies

You can use a business plan to document your marketing plans. Every business should have an effective marketing plan.

Competition mandates every business owner to go the extraordinary mile to remain relevant in the market. Your business plan should contain your marketing strategies that work. You can measure the success rate of your marketing plans.

In your business plan, your marketing strategy must answer the questions:

How do you want to reach your target audience?
How do you plan to retain your customers?
What is/are your pricing plans?
What is your budget for marketing?

How to Write a Business Plan Step-by-Step

1. create your executive summary.

The executive summary is a snapshot of your business or a high-level overview of your business purposes and plans . Although the executive summary is the first section in your business plan, most people write it last. The length of the executive summary is not more than two pages.

Generally, there are nine sections in a business plan, the executive summary should condense essential ideas from the other eight sections.

A good executive summary should do the following:

A Snapshot of Growth Potential. Briefly inform the reader about your company and why it will be successful)
Contain your Mission Statement which explains what the main objective or focus of your business is.
Product Description and Differentiation. Brief description of your products or services and why it is different from other solutions in the market.
The Team. Basic information about your company’s leadership team and employees
Business Concept. A solid description of what your business does.
Target Market. The customers you plan to sell to.
Marketing Strategy. Your plans on reaching and selling to your customers
Current Financial State. Brief information about what revenue your business currently generates.
Projected Financial State. Brief information about what you foresee your business revenue to be in the future.

The executive summary is the make-or-break section of your business plan. If your summary cannot in less than two pages cannot clearly describe how your business will solve a particular problem of your target audience and make a profit, your business plan is set on a faulty foundation.

Avoid using the executive summary to hype your business, instead, focus on helping the reader understand the what and how of your plan.

View the executive summary as an opportunity to introduce your vision for your company. You know your executive summary is powerful when it can answer these key questions:

Who is your target audience?
What sector or industry are you in?
What are your products and services?
What is the future of your industry?
Is your company scaleable?
Who are the owners and leaders of your company? What are their backgrounds and experience levels?
What is the motivation for starting your company?
What are the next steps?

Writing the executive summary last although it is the most important section of your business plan is an excellent idea. The reason why is because it is a high-level overview of your business plan. It is the section that determines whether potential investors and lenders will read further or not.

The executive summary can be a stand-alone document that covers everything in your business plan. It is not uncommon for investors to request only the executive summary when evaluating your business. If the information in the executive summary impresses them, they will ask for the complete business plan.

If you are writing your business plan for your planning purposes, you do not need to write the executive summary.

2. Add Your Company Overview

The company overview or description is the next section in your business plan after the executive summary. It describes what your business does.

Adding your company overview can be tricky especially when your business is still in the planning stages. Existing businesses can easily summarize their current operations but may encounter difficulties trying to explain what they plan to become.

Your company overview should contain the following:

What products and services you will provide
Geographical markets and locations your company have a presence
What you need to run your business
Who your target audience or customers are
Who will service your customers
Your company’s purpose, mission, and vision
Information about your company’s founders
Who the founders are
Notable achievements of your company so far

When creating a company overview, you have to focus on three basics: identifying your industry, identifying your customer, and explaining the problem you solve.

If you are stuck when creating your company overview, try to answer some of these questions that pertain to you.

Who are you targeting? (The answer is not everyone)
What pain point does your product or service solve for your customers that they will be willing to spend money on resolving?
How does your product or service overcome that pain point?
Where is the location of your business?
What products, equipment, and services do you need to run your business?
How is your company’s product or service different from your competition in the eyes of your customers?
How many employees do you need and what skills do you require them to have?

After answering some or all of these questions, you will get more than enough information you need to write your company overview or description section. When writing this section, describe what your company does for your customers.

The company description or overview section contains three elements: mission statement, history, and objectives.

Mission Statement

The mission statement refers to the reason why your business or company is existing. It goes beyond what you do or sell, it is about the ‘why’. A good mission statement should be emotional and inspirational.

Your mission statement should follow the KISS rule (Keep It Simple, Stupid). For example, Shopify’s mission statement is “Make commerce better for everyone.”

When describing your company’s history, make it simple and avoid the temptation of tying it to a defensive narrative. Write it in the manner you would a profile. Your company’s history should include the following information:

Founding Date
Major Milestones
Location(s)
Flagship Products or Services
Number of Employees
Executive Leadership Roles

When you fill in this information, you use it to write one or two paragraphs about your company’s history.

Business Objectives

Your business objective must be SMART (specific, measurable, achievable, realistic, and time-bound.) Failure to clearly identify your business objectives does not inspire confidence and makes it hard for your team members to work towards a common purpose.

3. Perform Market and Competitive Analyses to Proof a Big Enough Business Opportunity

The third step in writing a business plan is the market and competitive analysis section. Every business, no matter the size, needs to perform comprehensive market and competitive analyses before it enters into a market.

Performing market and competitive analyses are critical for the success of your business. It helps you avoid entering the right market with the wrong product, or vice versa. Anyone reading your business plans, especially financiers and financial institutions will want to see proof that there is a big enough business opportunity you are targeting.

This section is where you describe the market and industry you want to operate in and show the big opportunities in the market that your business can leverage to make a profit. If you noticed any unique trends when doing your research, show them in this section.

Market analysis alone is not enough, you have to add competitive analysis to strengthen this section. There are already businesses in the industry or market, how do you plan to take a share of the market from them?

You have to clearly illustrate the competitive landscape in your business plan. Are there areas your competitors are doing well? Are there areas where they are not doing so well? Show it.

Make it clear in this section why you are moving into the industry and what weaknesses are present there that you plan to explain. How are your competitors going to react to your market entry? How do you plan to get customers? Do you plan on taking your competitors' competitors, tap into other sources for customers, or both?

Illustrate the competitive landscape as well. What are your competitors doing well and not so well?

Answering these questions and thoughts will aid your market and competitive analysis of the opportunities in your space. Depending on how sophisticated your industry is, or the expectations of your financiers, you may need to carry out a more comprehensive market and competitive analysis to prove that big business opportunity.

Instead of looking at the market and competitive analyses as one entity, separating them will make the research even more comprehensive.

Market Analysis

Market analysis, boarding speaking, refers to research a business carried out on its industry, market, and competitors. It helps businesses gain a good understanding of their target market and the outlook of their industry. Before starting a company, it is vital to carry out market research to find out if the market is viable.

The market analysis section is a key part of the business plan. It is the section where you identify who your best clients or customers are. You cannot omit this section, without it your business plan is incomplete.

A good market analysis will tell your readers how you fit into the existing market and what makes you stand out. This section requires in-depth research, it will probably be the most time-consuming part of the business plan to write.

Market Research

To create a compelling market analysis that will win over investors and financial institutions, you have to carry out thorough market research . Your market research should be targeted at your primary target market for your products or services. Here is what you want to find out about your target market.

Your target market’s needs or pain points
The existing solutions for their pain points
Geographic Location
Demographics

The purpose of carrying out a marketing analysis is to get all the information you need to show that you have a solid and thorough understanding of your target audience.

Only after you have fully understood the people you plan to sell your products or services to, can you evaluate correctly if your target market will be interested in your products or services.

You can easily convince interested parties to invest in your business if you can show them you thoroughly understand the market and show them that there is a market for your products or services.

How to Quantify Your Target Market

One of the goals of your marketing research is to understand who your ideal customers are and their purchasing power. To quantify your target market, you have to determine the following:

Your Potential Customers: They are the people you plan to target. For example, if you sell accounting software for small businesses , then anyone who runs an enterprise or large business is unlikely to be your customers. Also, individuals who do not have a business will most likely not be interested in your product.
Total Households: If you are selling household products such as heating and air conditioning systems, determining the number of total households is more important than finding out the total population in the area you want to sell to. The logic is simple, people buy the product but it is the household that uses it.
Median Income: You need to know the median income of your target market. If you target a market that cannot afford to buy your products and services, your business will not last long.
Income by Demographics: If your potential customers belong to a certain age group or gender, determining income levels by demographics is necessary. For example, if you sell men's clothes, your target audience is men.

What Does a Good Market Analysis Entail?

Your business does not exist on its own, it can only flourish within an industry and alongside competitors. Market analysis takes into consideration your industry, target market, and competitors. Understanding these three entities will drastically improve your company’s chances of success.

You can view your market analysis as an examination of the market you want to break into and an education on the emerging trends and themes in that market. Good market analyses include the following:

Industry Description. You find out about the history of your industry, the current and future market size, and who the largest players/companies are in your industry.
Overview of Target Market. You research your target market and its characteristics. Who are you targeting? Note, it cannot be everyone, it has to be a specific group. You also have to find out all information possible about your customers that can help you understand how and why they make buying decisions.
Size of Target Market: You need to know the size of your target market, how frequently they buy, and the expected quantity they buy so you do not risk overproducing and having lots of bad inventory. Researching the size of your target market will help you determine if it is big enough for sustained business or not.
Growth Potential: Before picking a target market, you want to be sure there are lots of potential for future growth. You want to avoid going for an industry that is declining slowly or rapidly with almost zero growth potential.
Market Share Potential: Does your business stand a good chance of taking a good share of the market?
Market Pricing and Promotional Strategies: Your market analysis should give you an idea of the price point you can expect to charge for your products and services. Researching your target market will also give you ideas of pricing strategies you can implement to break into the market or to enjoy maximum profits.
Potential Barriers to Entry: One of the biggest benefits of conducting market analysis is that it shows you every potential barrier to entry your business will likely encounter. It is a good idea to discuss potential barriers to entry such as changing technology. It informs readers of your business plan that you understand the market.
Research on Competitors: You need to know the strengths and weaknesses of your competitors and how you can exploit them for the benefit of your business. Find patterns and trends among your competitors that make them successful, discover what works and what doesn’t, and see what you can do better.

The market analysis section is not just for talking about your target market, industry, and competitors. You also have to explain how your company can fill the hole you have identified in the market.

Here are some questions you can answer that can help you position your product or service in a positive light to your readers.

Is your product or service of superior quality?
What additional features do you offer that your competitors do not offer?
Are you targeting a ‘new’ market?

Basically, your market analysis should include an analysis of what already exists in the market and an explanation of how your company fits into the market.

Competitive Analysis

In the competitive analysis section, y ou have to understand who your direct and indirect competitions are, and how successful they are in the marketplace. It is the section where you assess the strengths and weaknesses of your competitors, the advantage(s) they possess in the market and show the unique features or qualities that make you different from your competitors.

Four Steps to Create a Competitive Marketing Analysis

Many businesses do market analysis and competitive analysis together. However, to fully understand what the competitive analysis entails, it is essential to separate it from the market analysis.

Competitive analysis for your business can also include analysis on how to overcome barriers to entry in your target market.

The primary goal of conducting a competitive analysis is to distinguish your business from your competitors. A strong competitive analysis is essential if you want to convince potential funding sources to invest in your business. You have to show potential investors and lenders that your business has what it takes to compete in the marketplace successfully.

Competitive analysis will s how you what the strengths of your competition are and what they are doing to maintain that advantage.

When doing your competitive research, you first have to identify your competitor and then get all the information you can about them. The idea of spending time to identify your competitor and learn everything about them may seem daunting but it is well worth it.

Find answers to the following questions after you have identified who your competitors are.

What are your successful competitors doing?
Why is what they are doing working?
Can your business do it better?
What are the weaknesses of your successful competitors?
What are they not doing well?
Can your business turn its weaknesses into strengths?
How good is your competitors’ customer service?
Where do your competitors invest in advertising?
What sales and pricing strategies are they using?
What marketing strategies are they using?
What kind of press coverage do they get?
What are their customers saying about your competitors (both the positive and negative)?

If your competitors have a website, it is a good idea to visit their websites for more competitors’ research. Check their “About Us” page for more information.

If you are presenting your business plan to investors, you need to clearly distinguish yourself from your competitors. Investors can easily tell when you have not properly researched your competitors.

Take time to think about what unique qualities or features set you apart from your competitors. If you do not have any direct competition offering your product to the market, it does not mean you leave out the competitor analysis section blank. Instead research on other companies that are providing a similar product, or whose product is solving the problem your product solves.

The next step is to create a table listing the top competitors you want to include in your business plan. Ensure you list your business as the last and on the right. What you just created is known as the competitor analysis table.

Direct vs Indirect Competition

You cannot know if your product or service will be a fit for your target market if you have not understood your business and the competitive landscape.

There is no market you want to target where you will not encounter competition, even if your product is innovative. Including competitive analysis in your business plan is essential.

If you are entering an established market, you need to explain how you plan to differentiate your products from the available options in the market. Also, include a list of few companies that you view as your direct competitors The competition you face in an established market is your direct competition.

In situations where you are entering a market with no direct competition, it does not mean there is no competition there. Consider your indirect competition that offers substitutes for the products or services you offer.

For example, if you sell an innovative SaaS product, let us say a project management software , a company offering time management software is your indirect competition.

There is an easy way to find out who your indirect competitors are in the absence of no direct competitors. You simply have to research how your potential customers are solving the problems that your product or service seeks to solve. That is your direct competition.

Factors that Differentiate Your Business from the Competition

There are three main factors that any business can use to differentiate itself from its competition. They are cost leadership, product differentiation, and market segmentation.

1. Cost Leadership

A strategy you can impose to maximize your profits and gain an edge over your competitors. It involves offering lower prices than what the majority of your competitors are offering.

A common practice among businesses looking to enter into a market where there are dominant players is to use free trials or pricing to attract as many customers as possible to their offer.

2. Product Differentiation

Your product or service should have a unique selling proposition (USP) that your competitors do not have or do not stress in their marketing.

Part of the marketing strategy should involve making your products unique and different from your competitors. It does not have to be different from your competitors, it can be the addition to a feature or benefit that your competitors do not currently have.

3. Market Segmentation

As a new business seeking to break into an industry, you will gain more success from focusing on a specific niche or target market, and not the whole industry.

If your competitors are focused on a general need or target market, you can differentiate yourself from them by having a small and hyper-targeted audience. For example, if your competitors are selling men’s clothes in their online stores , you can sell hoodies for men.

4. Define Your Business and Management Structure

The next step in your business plan is your business and management structure. It is the section where you describe the legal structure of your business and the team running it.

Your business is only as good as the management team that runs it, while the management team can only strive when there is a proper business and management structure in place.

If your company is a sole proprietor or a limited liability company (LLC), a general or limited partnership, or a C or an S corporation, state it clearly in this section.

Use an organizational chart to show the management structure in your business. Clearly show who is in charge of what area in your company. It is where you show how each key manager or team leader’s unique experience can contribute immensely to the success of your company. You can also opt to add the resumes and CVs of the key players in your company.

The business and management structure section should show who the owner is, and other owners of the businesses (if the business has other owners). For businesses or companies with multiple owners, include the percent ownership of the various owners and clearly show the extent of each others’ involvement in the company.

Investors want to know who is behind the company and the team running it to determine if it has the right management to achieve its set goals.

Management Team

The management team section is where you show that you have the right team in place to successfully execute the business operations and ideas. Take time to create the management structure for your business. Think about all the important roles and responsibilities that you need managers for to grow your business.

Include brief bios of each key team member and ensure you highlight only the relevant information that is needed. If your team members have background industry experience or have held top positions for other companies and achieved success while filling that role, highlight it in this section.

Create Management Team For Business Plan

A common mistake that many startups make is assigning C-level titles such as (CMO and CEO) to everyone on their team. It is unrealistic for a small business to have those titles. While it may look good on paper for the ego of your team members, it can prevent investors from investing in your business.

Instead of building an unrealistic management structure that does not fit your business reality, it is best to allow business titles to grow as the business grows. Starting everyone at the top leaves no room for future change or growth, which is bad for productivity.

Your management team does not have to be complete before you start writing your business plan. You can have a complete business plan even when there are managerial positions that are empty and need filling.

If you have management gaps in your team, simply show the gaps and indicate you are searching for the right candidates for the role(s). Investors do not expect you to have a full management team when you are just starting your business.

Key Questions to Answer When Structuring Your Management Team

Who are the key leaders?
What experiences, skills, and educational backgrounds do you expect your key leaders to have?
Do your key leaders have industry experience?
What positions will they fill and what duties will they perform in those positions?
What level of authority do the key leaders have and what are their responsibilities?
What is the salary for the various management positions that will attract the ideal candidates?

Additional Tips for Writing the Management Structure Section

1. Avoid Adding ‘Ghost’ Names to Your Management Team

There is always that temptation to include a ‘ghost’ name to your management team to attract and influence investors to invest in your business. Although the presence of these celebrity management team members may attract the attention of investors, it can cause your business to lose any credibility if you get found out.

Seasoned investors will investigate further the members of your management team before committing fully to your business If they find out that the celebrity name used does not play any actual role in your business, they will not invest and may write you off as dishonest.

2. Focus on Credentials But Pay Extra Attention to the Roles

Investors want to know the experience that your key team members have to determine if they can successfully reach the company’s growth and financial goals.

While it is an excellent boost for your key management team to have the right credentials, you also want to pay extra attention to the roles they will play in your company.

Organizational Chart

Adding an organizational chart in this section of your business plan is not necessary, you can do it in your business plan’s appendix.

If you are exploring funding options, it is not uncommon to get asked for your organizational chart. The function of an organizational chart goes beyond raising money, you can also use it as a useful planning tool for your business.

An organizational chart can help you identify how best to structure your management team for maximum productivity and point you towards key roles you need to fill in the future.

You can use the organizational chart to show your company’s internal management structure such as the roles and responsibilities of your management team, and relationships that exist between them.

5. Describe Your Product and Service Offering

In your business plan, you have to describe what you sell or the service you plan to offer. It is the next step after defining your business and management structure. The products and services section is where you sell the benefits of your business.

Here you have to explain how your product or service will benefit your customers and describe your product lifecycle. It is also the section where you write down your plans for intellectual property like patent filings and copyrighting.

The research and development that you are undertaking for your product or service need to be explained in detail in this section. However, do not get too technical, sell the general idea and its benefits.

If you have any diagrams or intricate designs of your product or service, do not include them in the products and services section. Instead, leave them for the addendum page. Also, if you are leaving out diagrams or designs for the addendum, ensure you add this phrase “For more detail, visit the addendum Page #.”

Your product and service section in your business plan should include the following:

A detailed explanation that clearly shows how your product or service works.
The pricing model for your product or service.
Your business’ sales and distribution strategy.
The ideal customers that want your product or service.
The benefits of your products and services.
Reason(s) why your product or service is a better alternative to what your competitors are currently offering in the market.
Plans for filling the orders you receive
If you have current or pending patents, copyrights, and trademarks for your product or service, you can also discuss them in this section.

What to Focus On When Describing the Benefits, Lifecycle, and Production Process of Your Products or Services

In the products and services section, you have to distill the benefits, lifecycle, and production process of your products and services.

When describing the benefits of your products or services, here are some key factors to focus on.

Unique features
Translating the unique features into benefits
The emotional, psychological, and practical payoffs to attract customers
Intellectual property rights or any patents

When describing the product life cycle of your products or services, here are some key factors to focus on.

Upsells, cross-sells, and down-sells
Time between purchases
Plans for research and development.

When describing the production process for your products or services, you need to think about the following:

The creation of new or existing products and services.
The sources for the raw materials or components you need for production.
Assembling the products
Maintaining quality control
Supply-chain logistics (receiving the raw materials and delivering the finished products)
The day-to-day management of the production processes, bookkeeping, and inventory.

Tips for Writing the Products or Services Section of Your Business Plan

1. Avoid Technical Descriptions and Industry Buzzwords

The products and services section of your business plan should clearly describe the products and services that your company provides. However, it is not a section to include technical jargons that anyone outside your industry will not understand.

A good practice is to remove highly detailed or technical descriptions in favor of simple terms. Industry buzzwords are not necessary, if there are simpler terms you can use, then use them. If you plan to use your business plan to source funds, making the product or service section so technical will do you no favors.

2. Describe How Your Products or Services Differ from Your Competitors

When potential investors look at your business plan, they want to know how the products and services you are offering differ from that of your competition. Differentiating your products or services from your competition in a way that makes your solution more attractive is critical.

If you are going the innovative path and there is no market currently for your product or service, you need to describe in this section why the market needs your product or service.

For example, overnight delivery was a niche business that only a few companies were participating in. Federal Express (FedEx) had to show in its business plan that there was a large opportunity for that service and they justified why the market needed that service.

3. Long or Short Products or Services Section

Should your products or services section be short? Does the long products or services section attract more investors?

There are no straightforward answers to these questions. Whether your products or services section should be long or relatively short depends on the nature of your business.

If your business is product-focused, then automatically you need to use more space to describe the details of your products. However, if the product your business sells is a commodity item that relies on competitive pricing or other pricing strategies, you do not have to use up so much space to provide significant details about the product.

Likewise, if you are selling a commodity that is available in numerous outlets, then you do not have to spend time on writing a long products or services section.

The key to the success of your business is most likely the effectiveness of your marketing strategies compared to your competitors. Use more space to address that section.

If you are creating a new product or service that the market does not know about, your products or services section can be lengthy. The reason why is because you need to explain everything about the product or service such as the nature of the product, its use case, and values.

A short products or services section for an innovative product or service will not give the readers enough information to properly evaluate your business.

4. Describe Your Relationships with Vendors or Suppliers

Your business will rely on vendors or suppliers to supply raw materials or the components needed to make your products. In your products and services section, describe your relationships with your vendors and suppliers fully.

Avoid the mistake of relying on only one supplier or vendor. If that supplier or vendor fails to supply or goes out of business, you can easily face supply problems and struggle to meet your demands. Plan to set up multiple vendor or supplier relationships for better business stability.

5. Your Primary Goal Is to Convince Your Readers

The primary goal of your business plan is to convince your readers that your business is viable and to create a guide for your business to follow. It applies to the products and services section.

When drafting this section, think like the reader. See your reader as someone who has no idea about your products and services. You are using the products and services section to provide the needed information to help your reader understand your products and services. As a result, you have to be clear and to the point.

While you want to educate your readers about your products or services, you also do not want to bore them with lots of technical details. Show your products and services and not your fancy choice of words.

Your products and services section should provide the answer to the “what” question for your business. You and your management team may run the business, but it is your products and services that are the lifeblood of the business.

Key Questions to Answer When Writing your Products and Services Section

Answering these questions can help you write your products and services section quickly and in a way that will appeal to your readers.

Are your products existing on the market or are they still in the development stage?
What is your timeline for adding new products and services to the market?
What are the positives that make your products and services different from your competitors?
Do your products and services have any competitive advantage that your competitors’ products and services do not currently have?
Do your products or services have any competitive disadvantages that you need to overcome to compete with your competitors? If your answer is yes, state how you plan to overcome them,
How much does it cost to produce your products or services? How much do you plan to sell it for?
What is the price for your products and services compared to your competitors? Is pricing an issue?
What are your operating costs and will it be low enough for you to compete with your competitors and still take home a reasonable profit margin?
What is your plan for acquiring your products? Are you involved in the production of your products or services?
Are you the manufacturer and produce all the components you need to create your products? Do you assemble your products by using components supplied by other manufacturers? Do you purchase your products directly from suppliers or wholesalers?
Do you have a steady supply of products that you need to start your business? (If your business is yet to kick-off)
How do you plan to distribute your products or services to the market?

You can also hint at the marketing or promotion plans you have for your products or services such as how you plan to build awareness or retain customers. The next section is where you can go fully into details about your business’s marketing and sales plan.

6. Show and Explain Your Marketing and Sales Plan

Providing great products and services is wonderful, but it means nothing if you do not have a marketing and sales plan to inform your customers about them. Your marketing and sales plan is critical to the success of your business.

The sales and marketing section is where you show and offer a detailed explanation of your marketing and sales plan and how you plan to execute it. It covers your pricing plan, proposed advertising and promotion activities, activities and partnerships you need to make your business a success, and the benefits of your products and services.

There are several ways you can approach your marketing and sales strategy. Ideally, your marketing and sales strategy has to fit the unique needs of your business.

In this section, you describe how the plans your business has for attracting and retaining customers, and the exact process for making a sale happen. It is essential to thoroughly describe your complete marketing and sales plans because you are still going to reference this section when you are making financial projections for your business.

Outline Your Business’ Unique Selling Proposition (USP)

The sales and marketing section is where you outline your business’s unique selling proposition (USP). When you are developing your unique selling proposition, think about the strongest reasons why people should buy from you over your competition. That reason(s) is most likely a good fit to serve as your unique selling proposition (USP).

Target Market and Target Audience

Plans on how to get your products or services to your target market and how to get your target audience to buy them go into this section. You also highlight the strengths of your business here, particularly what sets them apart from your competition.

Before you start writing your marketing and sales plan, you need to have properly defined your target audience and fleshed out your buyer persona. If you do not first understand the individual you are marketing to, your marketing and sales plan will lack any substance and easily fall.

Creating a Smart Marketing and Sales Plan

Marketing your products and services is an investment that requires you to spend money. Like any other investment, you have to generate a good return on investment (ROI) to justify using that marketing and sales plan. Good marketing and sales plans bring in high sales and profits to your company.

Avoid spending money on unproductive marketing channels. Do your research and find out the best marketing and sales plan that works best for your company.

Your marketing and sales plan can be broken into different parts: your positioning statement, pricing, promotion, packaging, advertising, public relations, content marketing, social media, and strategic alliances.

Your Positioning Statement

Your positioning statement is the first part of your marketing and sales plan. It refers to the way you present your company to your customers.

Are you the premium solution, the low-price solution, or are you the intermediary between the two extremes in the market? What do you offer that your competitors do not that can give you leverage in the market?

Before you start writing your positioning statement, you need to spend some time evaluating the current market conditions. Here are some questions that can help you to evaluate the market

What are the unique features or benefits that you offer that your competitors lack?
What are your customers’ primary needs and wants?
Why should a customer choose you over your competition? How do you plan to differentiate yourself from the competition?
How does your company’s solution compare with other solutions in the market?

After answering these questions, then you can start writing your positioning statement. Your positioning statement does not have to be in-depth or too long.

All you need to explain with your positioning statement are two focus areas. The first is the position of your company within the competitive landscape. The other focus area is the core value proposition that sets your company apart from other alternatives that your ideal customer might consider.

Here is a simple template you can use to develop a positioning statement.

For [description of target market] who [need of target market], [product or service] [how it meets the need]. Unlike [top competition], it [most essential distinguishing feature].

For example, let’s create the positioning statement for fictional accounting software and QuickBooks alternative , TBooks.

“For small business owners who need accounting services, TBooks is an accounting software that helps small businesses handle their small business bookkeeping basics quickly and easily. Unlike Wave, TBooks gives small businesses access to live sessions with top accountants.”

You can edit this positioning statement sample and fill it with your business details.

After writing your positioning statement, the next step is the pricing of your offerings. The overall positioning strategy you set in your positioning statement will often determine how you price your products or services.

Pricing is a powerful tool that sends a strong message to your customers. Failure to get your pricing strategy right can make or mar your business. If you are targeting a low-income audience, setting a premium price can result in low sales.

You can use pricing to communicate your positioning to your customers. For example, if you are offering a product at a premium price, you are sending a message to your customers that the product belongs to the premium category.

Basic Rules to Follow When Pricing Your Offering

Setting a price for your offering involves more than just putting a price tag on it. Deciding on the right pricing for your offering requires following some basic rules. They include covering your costs, primary and secondary profit center pricing, and matching the market rate.

Covering Your Costs: The price you set for your products or service should be more than it costs you to produce and deliver them. Every business has the same goal, to make a profit. Depending on the strategy you want to use, there are exceptions to this rule. However, the vast majority of businesses follow this rule.
Primary and Secondary Profit Center Pricing: When a company sets its price above the cost of production, it is making that product its primary profit center. A company can also decide not to make its initial price its primary profit center by selling below or at even with its production cost. It rather depends on the support product or even maintenance that is associated with the initial purchase to make its profit. The initial price thus became its secondary profit center.
Matching the Market Rate: A good rule to follow when pricing your products or services is to match your pricing with consumer demand and expectations. If you price your products or services beyond the price your customer perceives as the ideal price range, you may end up with no customers. Pricing your products too low below what your customer perceives as the ideal price range may lead to them undervaluing your offering.

Pricing Strategy

Your pricing strategy influences the price of your offering. There are several pricing strategies available for you to choose from when examining the right pricing strategy for your business. They include cost-plus pricing, market-based pricing, value pricing, and more.

Cost-plus Pricing: This strategy is one of the simplest and oldest pricing strategies. Here you consider the cost of producing a unit of your product and then add a profit to it to arrive at your market price. It is an effective pricing strategy for manufacturers because it helps them cover their initial costs. Another name for the cost-plus pricing strategy is the markup pricing strategy.
Market-based Pricing: This pricing strategy analyses the market including competitors’ pricing and then sets a price based on what the market is expecting. With this pricing strategy, you can either set your price at the low-end or high-end of the market.
Value Pricing: This pricing strategy involves setting a price based on the value you are providing to your customer. When adopting a value-based pricing strategy, you have to set a price that your customers are willing to pay. Service-based businesses such as small business insurance providers , luxury goods sellers, and the fashion industry use this pricing strategy.

After carefully sorting out your positioning statement and pricing, the next item to look at is your promotional strategy. Your promotional strategy explains how you plan on communicating with your customers and prospects.

As a business, you must measure all your costs, including the cost of your promotions. You also want to measure how much sales your promotions bring for your business to determine its usefulness. Promotional strategies or programs that do not lead to profit need to be removed.

There are different types of promotional strategies you can adopt for your business, they include advertising, public relations, and content marketing.

Advertising

Your business plan should include your advertising plan which can be found in the marketing and sales plan section. You need to include an overview of your advertising plans such as the areas you plan to spend money on to advertise your business and offers.

Ensure that you make it clear in this section if your business will be advertising online or using the more traditional offline media, or the combination of both online and offline media. You can also include the advertising medium you want to use to raise awareness about your business and offers.

Some common online advertising mediums you can use include social media ads, landing pages, sales pages, SEO, Pay-Per-Click, emails, Google Ads, and others. Some common traditional and offline advertising mediums include word of mouth, radios, direct mail, televisions, flyers, billboards, posters, and others.

A key component of your advertising strategy is how you plan to measure the effectiveness and success of your advertising campaign. There is no point in sticking with an advertising plan or medium that does not produce results for your business in the long run.

Public Relations

A great way to reach your customers is to get the media to cover your business or product. Publicity, especially good ones, should be a part of your marketing and sales plan. In this section, show your plans for getting prominent reviews of your product from reputable publications and sources.

Your business needs that exposure to grow. If public relations is a crucial part of your promotional strategy, provide details about your public relations plan here.

Content Marketing

Content marketing is a popular promotional strategy used by businesses to inform and attract their customers. It is about teaching and educating your prospects on various topics of interest in your niche, it does not just involve informing them about the benefits and features of the products and services you have,

Businesses publish content usually for free where they provide useful information, tips, and advice so that their target market can be made aware of the importance of their products and services. Content marketing strategies seek to nurture prospects into buyers over time by simply providing value.

Your company can create a blog where it will be publishing content for its target market. You will need to use the best website builder such as Wix and Squarespace and the best web hosting services such as Bluehost, Hostinger, and other Bluehost alternatives to create a functional blog or website.

If content marketing is a crucial part of your promotional strategy (as it should be), detail your plans under promotions.

Including high-quality images of the packaging of your product in your business plan is a lovely idea. You can add the images of the packaging of that product in the marketing and sales plan section. If you are not selling a product, then you do not need to include any worry about the physical packaging of your product.

When organizing the packaging section of your business plan, you can answer the following questions to make maximum use of this section.

Is your choice of packaging consistent with your positioning strategy?
What key value proposition does your packaging communicate? (It should reflect the key value proposition of your business)
How does your packaging compare to that of your competitors?

Social Media

Your 21st-century business needs to have a good social media presence. Not having one is leaving out opportunities for growth and reaching out to your prospect.

You do not have to join the thousands of social media platforms out there. What you need to do is join the ones that your customers are active on and be active there.

Businesses use social media to provide information about their products such as promotions, discounts, the benefits of their products, and content on their blogs.

Social media is also a platform for engaging with your customers and getting feedback about your products or services. Make no mistake, more and more of your prospects are using social media channels to find more information about companies.

You need to consider the social media channels you want to prioritize your business (prioritize the ones your customers are active in) and your branding plans in this section.

Choosing the right social media platform

Strategic Alliances

If your company plans to work closely with other companies as part of your sales and marketing plan, include it in this section. Prove details about those partnerships in your business plan if you have already established them.

Strategic alliances can be beneficial for all parties involved including your company. Working closely with another company in the form of a partnership can provide access to a different target market segment for your company.

The company you are partnering with may also gain access to your target market or simply offer a new product or service (that of your company) to its customers.

Mutually beneficial partnerships can cover the weaknesses of one company with the strength of another. You should consider strategic alliances with companies that sell complimentary products to yours. For example, if you provide printers, you can partner with a company that produces ink since the customers that buy printers from you will also need inks for printing.

Steps Involved in Creating a Marketing and Sales Plan

1. Focus on Your Target Market

Identify who your customers are, the market you want to target. Then determine the best ways to get your products or services to your potential customers.

2. Evaluate Your Competition

One of the goals of having a marketing plan is to distinguish yourself from your competition. You cannot stand out from them without first knowing them in and out.

You can know your competitors by gathering information about their products, pricing, service, and advertising campaigns.

These questions can help you know your competition.

What makes your competition successful?
What are their weaknesses?
What are customers saying about your competition?

3. Consider Your Brand

Customers' perception of your brand has a strong impact on your sales. Your marketing and sales plan should seek to bolster the image of your brand. Before you start marketing your business, think about the message you want to pass across about your business and your products and services.

4. Focus on Benefits

The majority of your customers do not view your product in terms of features, what they want to know is the benefits and solutions your product offers. Think about the problems your product solves and the benefits it delivers, and use it to create the right sales and marketing message.

Your marketing plan should focus on what you want your customer to get instead of what you provide. Identify those benefits in your marketing and sales plan.

5. Focus on Differentiation

Your marketing and sales plan should look for a unique angle they can take that differentiates your business from the competition, even if the products offered are similar. Some good areas of differentiation you can use are your benefits, pricing, and features.

Key Questions to Answer When Writing Your Marketing and Sales Plan

What is your company’s budget for sales and marketing campaigns?
What key metrics will you use to determine if your marketing plans are successful?
What are your alternatives if your initial marketing efforts do not succeed?
Who are the sales representatives you need to promote your products or services?
What are the marketing and sales channels you plan to use? How do you plan to get your products in front of your ideal customers?
Where will you sell your products?

You may want to include samples of marketing materials you plan to use such as print ads, website descriptions, and social media ads. While it is not compulsory to include these samples, it can help you better communicate your marketing and sales plan and objectives.

The purpose of the marketing and sales section is to answer this question “How will you reach your customers?” If you cannot convincingly provide an answer to this question, you need to rework your marketing and sales section.

7. Clearly Show Your Funding Request

If you are writing your business plan to ask for funding from investors or financial institutions, the funding request section is where you will outline your funding requirements. The funding request section should answer the question ‘How much money will your business need in the near future (3 to 5 years)?’

A good funding request section will clearly outline and explain the amount of funding your business needs over the next five years. You need to know the amount of money your business needs to make an accurate funding request.

Also, when writing your funding request, provide details of how the funds will be used over the period. Specify if you want to use the funds to buy raw materials or machinery, pay salaries, pay for advertisements, and cover specific bills such as rent and electricity.

In addition to explaining what you want to use the funds requested for, you need to clearly state the projected return on investment (ROI) . Investors and creditors want to know if your business can generate profit for them if they put funds into it.

Ensure you do not inflate the figures and stay as realistic as possible. Investors and financial institutions you are seeking funds from will do their research before investing money in your business.

If you are not sure of an exact number to request from, you can use some range of numbers as rough estimates. Add a best-case scenario and a work-case scenario to your funding request. Also, include a description of your strategic future financial plans such as selling your business or paying off debts.

Funding Request: Debt or Equity?

When making your funding request, specify the type of funding you want. Do you want debt or equity? Draw out the terms that will be applicable for the funding, and the length of time the funding request will cover.

Case for Equity

If your new business has not yet started generating profits, you are most likely preparing to sell equity in your business to raise capital at the early stage. Equity here refers to ownership. In this case, you are selling a portion of your company to raise capital.

Although this method of raising capital for your business does not put your business in debt, keep in mind that an equity owner may expect to play a key role in company decisions even if he does not hold a major stake in the company.

Most equity sales for startups are usually private transactions . If you are making a funding request by offering equity in exchange for funding, let the investor know that they will be paid a dividend (a share of the company’s profit). Also, let the investor know the process for selling their equity in your business.

Case for Debt

You may decide not to offer equity in exchange for funds, instead, you make a funding request with the promise to pay back the money borrowed at the agreed time frame.

When making a funding request with an agreement to pay back, note that you will have to repay your creditors both the principal amount borrowed and the interest on it. Financial institutions offer this type of funding for businesses.

Large companies combine both equity and debt in their capital structure. When drafting your business plan, decide if you want to offer both or one over the other.

Before you sell equity in exchange for funding in your business, consider if you are willing to accept not being in total control of your business. Also, before you seek loans in your funding request section, ensure that the terms of repayment are favorable.

You should set a clear timeline in your funding request so that potential investors and creditors can know what you are expecting. Some investors and creditors may agree to your funding request and then delay payment for longer than 30 days, meanwhile, your business needs an immediate cash injection to operate efficiently.

Additional Tips for Writing the Funding Request Section of your Business Plan

The funding request section is not necessary for every business, it is only needed by businesses who plan to use their business plan to secure funding.

If you are adding the funding request section to your business plan, provide an itemized summary of how you plan to use the funds requested. Hiring a lawyer, accountant, or other professionals may be necessary for the proper development of this section.

You should also gather and use financial statements that add credibility and support to your funding requests. Ensure that the financial statements you use should include your projected financial data such as projected cash flows, forecast statements, and expenditure budgets.

If you are an existing business, include all historical financial statements such as cash flow statements, balance sheets and income statements .

Provide monthly and quarterly financial statements for a year. If your business has records that date back beyond the one-year mark, add the yearly statements of those years. These documents are for the appendix section of your business plan.

8. Detail Your Financial Plan, Metrics, and Projections

If you used the funding request section in your business plan, supplement it with a financial plan, metrics, and projections. This section paints a picture of the past performance of your business and then goes ahead to make an informed projection about its future.

The goal of this section is to convince readers that your business is going to be a financial success. It outlines your business plan to generate enough profit to repay the loan (with interest if applicable) and to generate a decent return on investment for investors.

If you have an existing business already in operation, use this section to demonstrate stability through finance. This section should include your cash flow statements, balance sheets, and income statements covering the last three to five years. If your business has some acceptable collateral that you can use to acquire loans, list it in the financial plan, metrics, and projection section.

Apart from current financial statements, this section should also contain a prospective financial outlook that spans the next five years. Include forecasted income statements, cash flow statements, balance sheets, and capital expenditure budget.

If your business is new and is not yet generating profit, use clear and realistic projections to show the potentials of your business.

When drafting this section, research industry norms and the performance of comparable businesses. Your financial projections should cover at least five years. State the logic behind your financial projections. Remember you can always make adjustments to this section as the variables change.

The financial plan, metrics, and projection section create a baseline which your business can either exceed or fail to reach. If your business fails to reach your projections in this section, you need to understand why it failed.

Investors and loan managers spend a lot of time going through the financial plan, metrics, and projection section compared to other parts of the business plan. Ensure you spend time creating credible financial analyses for your business in this section.

Many entrepreneurs find this section daunting to write. You do not need a business degree to create a solid financial forecast for your business. Business finances, especially for startups, are not as complicated as they seem. There are several online tools and templates that make writing this section so much easier.

Use Graphs and Charts

The financial plan, metrics, and projection section is a great place to use graphs and charts to tell the financial story of your business. Charts and images make it easier to communicate your finances.

Accuracy in this section is key, ensure you carefully analyze your past financial statements properly before making financial projects.

Address the Risk Factors and Show Realistic Financial Projections

Keep your financial plan, metrics, and projection realistic. It is okay to be optimistic in your financial projection, however, you have to justify it.

You should also address the various risk factors associated with your business in this section. Investors want to know the potential risks involved, show them. You should also show your plans for mitigating those risks.

What You Should In The Financial Plan, Metrics, and Projection Section of Your Business Plan

The financial plan, metrics, and projection section of your business plan should have monthly sales and revenue forecasts for the first year. It should also include annual projections that cover 3 to 5 years.

A three-year projection is a basic requirement to have in your business plan. However, some investors may request a five-year forecast.

Your business plan should include the following financial statements: sales forecast, personnel plan, income statement, income statement, cash flow statement, balance sheet, and an exit strategy.

1. Sales Forecast

Sales forecast refers to your projections about the number of sales your business is going to record over the next few years. It is typically broken into several rows, with each row assigned to a core product or service that your business is offering.

One common mistake people make in their business plan is to break down the sales forecast section into long details. A sales forecast should forecast the high-level details.

For example, if you are forecasting sales for a payroll software provider, you could break down your forecast into target market segments or subscription categories.

Your sales forecast section should also have a corresponding row for each sales row to cover the direct cost or Cost of Goods Sold (COGS). The objective of these rows is to show the expenses that your business incurs in making and delivering your product or service.

Note that your Cost of Goods Sold (COGS) should only cover those direct costs incurred when making your products. Other indirect expenses such as insurance, salaries, payroll tax, and rent should not be included.

For example, the Cost of Goods Sold (COGS) for a restaurant is the cost of ingredients while for a consulting company it will be the cost of paper and other presentation materials.

2. Personnel Plan

The personnel plan section is where you provide details about the payment plan for your employees. For a small business, you can easily list every position in your company and how much you plan to pay in the personnel plan.

However, for larger businesses, you have to break the personnel plan into functional groups such as sales and marketing.

The personnel plan will also include the cost of an employee beyond salary, commonly referred to as the employee burden. These costs include insurance, payroll taxes , and other essential costs incurred monthly as a result of having employees on your payroll.

3. Income Statement

The income statement section shows if your business is making a profit or taking a loss. Another name for the income statement is the profit and loss (P&L). It takes data from your sales forecast and personnel plan and adds other ongoing expenses you incur while running your business.

Every business plan should have an income statement. It subtracts your business expenses from its earnings to show if your business is generating profit or incurring losses.

The income statement has the following items: sales, Cost of Goods Sold (COGS), gross margin, operating expenses, total operating expenses, operating income , total expenses, and net profit.

Sales refer to the revenue your business generates from selling its products or services. Other names for sales are income or revenue.
Cost of Goods Sold (COGS) refers to the total cost of selling your products. Other names for COGS are direct costs or cost of sales. Manufacturing businesses use the Costs of Goods Manufactured (COGM) .
Gross Margin is the figure you get when you subtract your COGS from your sales. In your income statement, you can express it as a percentage of total sales (Gross margin / Sales = Gross Margin Percent).
Operating Expenses refer to all the expenses you incur from running your business. It exempts the COGS because it stands alone as a core part of your income statement. You also have to exclude taxes, depreciation, and amortization. Your operating expenses include salaries, marketing expenses, research and development (R&D) expenses, and other expenses.
Total Operating Expenses refers to the sum of all your operating expenses including those exemptions named above under operating expenses.
Operating Income refers to earnings before interest, taxes, depreciation, and amortization. It is simply known as the acronym EBITDA (earnings before interest, taxes, depreciation, and amortization). Calculating your operating income is simple, all you need to do is to subtract your COGS and total operating expenses from your sales.
Total Expenses refer to the sum of your operating expenses and your business’ interest, taxes, depreciation, and amortization.
Net profit shows whether your business has made a profit or taken a loss during a given timeframe.

4. Cash Flow Statement

The cash flow statement tracks the money you have in the bank at any given point. It is often confused with the income statement or the profit and loss statement. They are both different types of financial statements. The income statement calculates your profits and losses while the cash flow statement shows you how much you have in the bank.

5. Balance Sheet

The balance sheet is a financial statement that provides an overview of the financial health of your business. It contains information about the assets and liabilities of your company, and owner’s or shareholders’ equity.

You can get the net worth of your company by subtracting your company’s liabilities from its assets.

6. Exit Strategy

The exit strategy refers to a probable plan for selling your business either to the public in an IPO or to another company. It is the last thing you include in the financial plan, metrics, and projection section.

You can choose to omit the exit strategy from your business plan if you plan to maintain full ownership of your business and do not plan on seeking angel investment or virtual capitalist (VC) funding.

Investors may want to know what your exit plan is. They invest in your business to get a good return on investment.

Your exit strategy does not have to include long and boring details. Ensure you identify some interested parties who may be interested in buying the company if it becomes a success.

Exit Strategy Section of Business Plan Infographic

Key Questions to Answer with Your Financial Plan, Metrics, and Projection

Your financial plan, metrics, and projection section helps investors, creditors, or your internal managers to understand what your expenses are, the amount of cash you need, and what it takes to make your company profitable. It also shows what you will be doing with any funding.

You do not need to show actual financial data if you do not have one. Adding forecasts and projections to your financial statements is added proof that your strategy is feasible and shows investors you have planned properly.

Here are some key questions to answer to help you develop this section.

What is your sales forecast for the next year?
When will your company achieve a positive cash flow?
What are the core expenses you need to operate?
How much money do you need upfront to operate or grow your company?
How will you use the loans or investments?

9. Add an Appendix to Your Business Plan

Adding an appendix to your business plan is optional. It is a useful place to put any charts, tables, legal notes, definitions, permits, résumés, and other critical information that do not fit into other sections of your business plan.

The appendix section is where you would want to include details of a patent or patent-pending if you have one. You can always add illustrations or images of your products here. It is the last section of your business plan.

When writing your business plan, there are details you cut short or remove to prevent the entire section from becoming too lengthy. There are also details you want to include in the business plan but are not a good fit for any of the previous sections. You can add that additional information to the appendix section.

Businesses also use the appendix section to include supporting documents or other materials specially requested by investors or lenders.

You can include just about any information that supports the assumptions and statements you made in the business plan under the appendix. It is the one place in the business plan where unrelated data and information can coexist amicably.

If your appendix section is lengthy, try organizing it by adding a table of contents at the beginning of the appendix section. It is also advisable to group similar information to make it easier for the reader to access them.

A well-organized appendix section makes it easier to share your information clearly and concisely. Add footnotes throughout the rest of the business plan or make references in the plan to the documents in the appendix.

The appendix section is usually only necessary if you are seeking funding from investors or lenders, or hoping to attract partners.

People reading business plans do not want to spend time going through a heap of backup information, numbers, and charts. Keep these documents or information in the Appendix section in case the reader wants to dig deeper.

Common Items to Include in the Appendix Section of Your Business Plan

The appendix section includes documents that supplement or support the information or claims given in other sections of the business plans. Common items you can include in the appendix section include:

Additional data about the process of manufacturing or creation
Additional description of products or services such as product schematics
Additional financial documents or projections
Articles of incorporation and status
Backup for market research or competitive analysis
Bank statements
Business registries
Client testimonials (if your business is already running)
Copies of insurances
Credit histories (personal or/and business)
Deeds and permits
Equipment leases
Examples of marketing and advertising collateral
Industry associations and memberships
Images of product
Intellectual property
Key customer contracts
Legal documents and other contracts
Letters of reference
Links to references
Market research data
Organizational charts
Photographs of potential facilities
Professional licenses pertaining to your legal structure or type of business
Purchase orders
Resumes of the founder(s) and key managers
State and federal identification numbers or codes
Trademarks or patents’ registrations

Avoid using the appendix section as a place to dump any document or information you feel like adding. Only add documents or information that you support or increase the credibility of your business plan.

Tips and Strategies for Writing a Convincing Business Plan

To achieve a perfect business plan, you need to consider some key tips and strategies. These tips will raise the efficiency of your business plan above average.

1. Know Your Audience

When writing a business plan, you need to know your audience . Business owners write business plans for different reasons. Your business plan has to be specific. For example, you can write business plans to potential investors, banks, and even fellow board members of the company.

The audience you are writing to determines the structure of the business plan. As a business owner, you have to know your audience. Not everyone will be your audience. Knowing your audience will help you to narrow the scope of your business plan.

Consider what your audience wants to see in your projects, the likely questions they might ask, and what interests them.

A business plan used to address a company's board members will center on its employment schemes, internal affairs, projects, stakeholders, etc.
A business plan for financial institutions will talk about the size of your market and the chances for you to pay back any loans you demand.
A business plan for investors will show proof that you can return the investment capital within a specific time. In addition, it discusses your financial projections, tractions, and market size.

2. Get Inspiration from People

Writing a business plan from scratch as an entrepreneur can be daunting. That is why you need the right inspiration to push you to write one. You can gain inspiration from the successful business plans of other businesses. Look at their business plans, the style they use, the structure of the project, etc.

To make your business plan easier to create, search companies related to your business to get an exact copy of what you need to create an effective business plan. You can also make references while citing examples in your business plans.

When drafting your business plan, get as much help from others as you possibly can. By getting inspiration from people, you can create something better than what they have.

3. Avoid Being Over Optimistic

Many business owners make use of strong adjectives to qualify their content. One of the big mistakes entrepreneurs make when preparing a business plan is promising too much.

The use of superlatives and over-optimistic claims can prepare the audience for more than you can offer. In the end, you disappoint the confidence they have in you.

In most cases, the best option is to be realistic with your claims and statistics. Most of the investors can sense a bit of incompetency from the overuse of superlatives. As a new entrepreneur, do not be tempted to over-promise to get the interests of investors.

The concept of entrepreneurship centers on risks, nothing is certain when you make future analyses. What separates the best is the ability to do careful research and work towards achieving that, not promising more than you can achieve.

To make an excellent first impression as an entrepreneur, replace superlatives with compelling data-driven content. In this way, you are more specific than someone promising a huge ROI from an investment.

4. Keep it Simple and Short

When writing business plans, ensure you keep them simple throughout. Irrespective of the purpose of the business plan, your goal is to convince the audience.

One way to achieve this goal is to make them understand your proposal. Therefore, it would be best if you avoid the use of complex grammar to express yourself. It would be a huge turn-off if the people you want to convince are not familiar with your use of words.

Another thing to note is the length of your business plan. It would be best if you made it as brief as possible.

You hardly see investors or agencies that read through an extremely long document. In that case, if your first few pages can’t convince them, then you have lost it. The more pages you write, the higher the chances of you derailing from the essential contents.

To ensure your business plan has a high conversion rate, you need to dispose of every unnecessary information. For example, if you have a strategy that you are not sure of, it would be best to leave it out of the plan.

5. Make an Outline and Follow Through

A perfect business plan must have touched every part needed to convince the audience. Business owners get easily tempted to concentrate more on their products than on other sections. Doing this can be detrimental to the efficiency of the business plan.

For example, imagine you talking about a product but omitting or providing very little information about the target audience. You will leave your clients confused.

To ensure that your business plan communicates your full business model to readers, you have to input all the necessary information in it. One of the best ways to achieve this is to design a structure and stick to it.

This structure is what guides you throughout the writing. To make your work easier, you can assign an estimated word count or page limit to every section to avoid making it too bulky for easy reading. As a guide, the necessary things your business plan must contain are:

Table of contents
Introduction
Product or service description
Target audience
Market size
Competition analysis
Financial projections

Some specific businesses can include some other essential sections, but these are the key sections that must be in every business plan.

6. Ask a Professional to Proofread

When writing a business plan, you must tie all loose ends to get a perfect result. When you are done with writing, call a professional to go through the document for you. You are bound to make mistakes, and the way to correct them is to get external help.

You should get a professional in your field who can relate to every section of your business plan. It would be easier for the professional to notice the inner flaws in the document than an editor with no knowledge of your business.

In addition to getting a professional to proofread, get an editor to proofread and edit your document. The editor will help you identify grammatical errors, spelling mistakes, and inappropriate writing styles.

Writing a business plan can be daunting, but you can surmount that obstacle and get the best out of it with these tips.

Business Plan Examples and Templates That’ll Save You Tons of Time

1. hubspot's one-page business plan.

The one-page business plan template by HubSpot is the perfect guide for businesses of any size, irrespective of their business strategy. Although the template is condensed into a page, your final business plan should not be a page long! The template is designed to ask helpful questions that can help you develop your business plan.

Hubspot’s one-page business plan template is divided into nine fields:

Business opportunity
Company description
Industry analysis
Target market
Implementation timeline
Marketing plan
Financial summary
Funding required

2. Bplan’s Free Business Plan Template

Bplans' free business plan template is investor-approved. It is a rich template used by prestigious educational institutions such as Babson College and Princeton University to teach entrepreneurs how to create a business plan.

The template has six sections: the executive summary, opportunity, execution, company, financial plan, and appendix. There is a step-by-step guide for writing every little detail in the business plan. Follow the instructions each step of the way and you will create a business plan that impresses investors or lenders easily.

3. HubSpot's Downloadable Business Plan Template

HubSpot’s downloadable business plan template is a more comprehensive option compared to the one-page business template by HubSpot. This free and downloadable business plan template is designed for entrepreneurs.

The template is a comprehensive guide and checklist for business owners just starting their businesses. It tells you everything you need to fill in each section of the business plan and how to do it.

There are nine sections in this business plan template: an executive summary, company and business description, product and services line, market analysis, marketing plan, sales plan, legal notes, financial considerations, and appendix.

4. Business Plan by My Own Business Institute

My Own Business Institute (MOBI) which is a part of Santa Clara University's Center for Innovation and Entrepreneurship offers a free business plan template. You can either copy the free business template from the link provided above or download it as a Word document.

The comprehensive template consists of a whopping 15 sections.

The Business Profile
The Vision and the People
Home-Based Business and Freelance Business Opportunities
Organization
Licenses and Permits
Business Insurance
Communication Tools
Acquisitions
Location and Leasing
Accounting and Cash Flow
Opening and Marketing
Managing Employees
Expanding and Handling Problems

There are lots of helpful tips on how to fill each section in the free business plan template by MOBI.

5. Score's Business Plan Template for Startups

Score is an American nonprofit organization that helps entrepreneurs build successful companies. This business plan template for startups by Score is available for free download. The business plan template asks a whooping 150 generic questions that help entrepreneurs from different fields to set up the perfect business plan.

The business plan template for startups contains clear instructions and worksheets, all you have to do is answer the questions and fill the worksheets.

There are nine sections in the business plan template: executive summary, company description, products and services, marketing plan, operational plan, management and organization, startup expenses and capitalization, financial plan, and appendices.

The ‘refining the plan’ resource contains instructions that help you modify your business plan to suit your specific needs, industry, and target audience. After you have completed Score’s business plan template, you can work with a SCORE mentor for expert advice in business planning.

6. Minimalist Architecture Business Plan Template by Venngage

The minimalist architecture business plan template is a simple template by Venngage that you can customize to suit your business needs .

There are five sections in the template: an executive summary, statement of problem, approach and methodology, qualifications, and schedule and benchmark. The business plan template has instructions that guide users on what to fill in each section.

7. Small Business Administration Free Business Plan Template

The Small Business Administration (SBA) offers two free business plan templates, filled with practical real-life examples that you can model to create your business plan. Both free business plan templates are written by fictional business owners: Rebecca who owns a consulting firm, and Andrew who owns a toy company.

There are five sections in the two SBA’s free business plan templates.

Executive Summary
Company Description
Service Line
Marketing and Sales

8. The $100 Startup's One-Page Business Plan

The one-page business plan by the $100 startup is a simple business plan template for entrepreneurs who do not want to create a long and complicated plan . You can include more details in the appendices for funders who want more information beyond what you can put in the one-page business plan.

There are five sections in the one-page business plan such as overview, ka-ching, hustling, success, and obstacles or challenges or open questions. You can answer all the questions using one or two sentences.

9. PandaDoc’s Free Business Plan Template

The free business plan template by PandaDoc is a comprehensive 15-page document that describes the information you should include in every section.

There are 11 sections in PandaDoc’s free business plan template.

Executive summary
Business description
Products and services
Operations plan
Management organization
Financial plan
Conclusion / Call to action
Confidentiality statement

You have to sign up for its 14-day free trial to access the template. You will find different business plan templates on PandaDoc once you sign up (including templates for general businesses and specific businesses such as bakeries, startups, restaurants, salons, hotels, and coffee shops)

PandaDoc allows you to customize its business plan templates to fit the needs of your business. After editing the template, you can send it to interested parties and track opens and views through PandaDoc.

10. Invoiceberry Templates for Word, Open Office, Excel, or PPT

InvoiceBerry is a U.K based online invoicing and tracking platform that offers free business plan templates in .docx, .odt, .xlsx, and .pptx formats for freelancers and small businesses.

Before you can download the free business plan template, it will ask you to give it your email address. After you complete the little task, it will send the download link to your inbox for you to download. It also provides a business plan checklist in .xlsx file format that ensures you add the right information to the business plan.

Alternatives to the Traditional Business Plan

A business plan is very important in mapping out how one expects their business to grow over a set number of years, particularly when they need external investment in their business. However, many investors do not have the time to watch you present your business plan. It is a long and boring read.

Luckily, there are three alternatives to the traditional business plan (the Business Model Canvas, Lean Canvas, and Startup Pitch Deck). These alternatives are less laborious and easier and quicker to present to investors.

Business Model Canvas (BMC)

The business model canvas is a business tool used to present all the important components of setting up a business, such as customers, route to market, value proposition, and finance in a single sheet. It provides a very focused blueprint that defines your business initially which you can later expand on if needed.

The sheet is divided mainly into company, industry, and consumer models that are interconnected in how they find problems and proffer solutions.

Segments of the Business Model Canvas

The business model canvas was developed by founder Alexander Osterwalder to answer important business questions. It contains nine segments.

Key Partners: Who will be occupying important executive positions in your business? What do they bring to the table? Will there be a third party involved with the company?
Key Activities: What important activities will production entail? What activities will be carried out to ensure the smooth running of the company?
The Product’s Value Propositions: What does your product do? How will it be different from other products?
Customer Segments: What demography of consumers are you targeting? What are the habits of these consumers? Who are the MVPs of your target consumers?
Customer Relationships: How will the team support and work with its customer base? How do you intend to build and maintain trust with the customer?
Key Resources: What type of personnel and tools will be needed? What size of the budget will they need access to?
Channels: How do you plan to create awareness of your products? How do you intend to transport your product to the customer?
Cost Structure: What is the estimated cost of production? How much will distribution cost?
Revenue Streams: For what value are customers willing to pay? How do they prefer to pay for the product? Are there any external revenues attached apart from the main source? How do the revenue streams contribute to the overall revenue?

Lean Canvas

The lean canvas is a problem-oriented alternative to the standard business model canvas. It was proposed by Ash Maurya, creator of Lean Stack as a development of the business model generation. It uses a more problem-focused approach and it majorly targets entrepreneurs and startup businesses.

Lean Canvas uses the same 9 blocks concept as the business model canvas, however, they have been modified slightly to suit the needs and purpose of a small startup. The key partners, key activities, customer relationships, and key resources are replaced by new segments which are:

Problem: Simple and straightforward number of problems you have identified, ideally three.
Solution: The solutions to each problem.
Unfair Advantage: Something you possess that can't be easily bought or replicated.
Key Metrics: Important numbers that will tell how your business is doing.

Startup Pitch Deck

While the business model canvas compresses into a factual sheet, startup pitch decks expand flamboyantly.

Pitch decks, through slides, convey your business plan, often through graphs and images used to emphasize estimations and observations in your presentation. Entrepreneurs often use pitch decks to fully convince their target audience of their plans before discussing funding arrangements.

Considering the likelihood of it being used in a small time frame, a good startup pitch deck should ideally contain 20 slides or less to have enough time to answer questions from the audience.

Unlike the standard and lean business model canvases, a pitch deck doesn't have a set template on how to present your business plan but there are still important components to it. These components often mirror those of the business model canvas except that they are in slide form and contain more details.

Using Airbnb (one of the most successful start-ups in recent history) for reference, the important components of a good slide are listed below.

Cover/Introduction Slide: Here, you should include your company's name and mission statement. Your mission statement should be a very catchy tagline. Also, include personal information and contact details to provide an easy link for potential investors.
Problem Slide: This slide requires you to create a connection with the audience or the investor that you are pitching. For example in their pitch, Airbnb summarized the most important problems it would solve in three brief points – pricing of hotels, disconnection from city culture, and connection problems for local bookings.
Solution Slide: This slide includes your core value proposition. List simple and direct solutions to the problems you have mentioned
Customer Analysis: Here you will provide information on the customers you will be offering your service to. The identity of your customers plays an important part in fundraising as well as the long-run viability of the business.
Market Validation: Use competitive analysis to show numbers that prove the presence of a market for your product, industry behavior in the present and the long run, as well as the percentage of the market you aim to attract. It shows that you understand your competitors and customers and convinces investors of the opportunities presented in the market.
Business Model: Your business model is the hook of your presentation. It may vary in complexity but it should generally include a pricing system informed by your market analysis. The goal of the slide is to confirm your business model is easy to implement.
Marketing Strategy: This slide should summarize a few customer acquisition methods that you plan to use to grow the business.
Competitive Advantage: What this slide will do is provide information on what will set you apart and make you a more attractive option to customers. It could be the possession of technology that is not widely known in the market.
Team Slide: Here you will give a brief description of your team. Include your key management personnel here and their specific roles in the company. Include their educational background, job history, and skillsets. Also, talk about their accomplishments in their careers so far to build investors' confidence in members of your team.
Traction Slide: This validates the company’s business model by showing growth through early sales and support. The slide aims to reduce any lingering fears in potential investors by showing realistic periodic milestones and profit margins. It can include current sales, growth, valuable customers, pre-orders, or data from surveys outlining current consumer interest.
Funding Slide: This slide is popularly referred to as ‘the ask'. Here you will include important details like how much is needed to get your business off the ground and how the funding will be spent to help the company reach its goals.
Appendix Slides: Your pitch deck appendix should always be included alongside a standard pitch presentation. It consists of additional slides you could not show in the pitch deck but you need to complement your presentation.

It is important to support your calculations with pictorial renditions. Infographics, such as pie charts or bar graphs, will be more effective in presenting the information than just listing numbers. For example, a six-month graph that shows rising profit margins will easily look more impressive than merely writing it.

Lastly, since a pitch deck is primarily used to secure meetings and you may be sharing your pitch with several investors, it is advisable to keep a separate public version that doesn't include financials. Only disclose the one with projections once you have secured a link with an investor.

Advantages of the Business Model Canvas, Lean Canvas, and Startup Pitch Deck over the Traditional Business Plan

Time-Saving: Writing a detailed traditional business plan could take weeks or months. On the other hand, all three alternatives can be done in a few days or even one night of brainstorming if you have a comprehensive understanding of your business.
Easier to Understand: Since the information presented is almost entirely factual, it puts focus on what is most important in running the business. They cut away the excess pages of fillers in a traditional business plan and allow investors to see what is driving the business and what is getting in the way.
Easy to Update: Businesses typically present their business plans to many potential investors before they secure funding. What this means is that you may regularly have to amend your presentation to update statistics or adjust to audience-specific needs. For a traditional business plan, this could mean rewriting a whole section of your plan. For the three alternatives, updating is much easier because they are not voluminous.
Guide for a More In-depth Business Plan: All three alternatives have the added benefit of being able to double as a sketch of your business plan if the need to create one arises in the future.

Business Plan FAQ

Business plans are important for any entrepreneur who is looking for a framework to run their company over some time or seeking external support. Although they are essential for new businesses, every company should ideally have a business plan to track their growth from time to time. They can be used by startups seeking investments or loans to convey their business ideas or an employee to convince his boss of the feasibility of starting a new project. They can also be used by companies seeking to recruit high-profile employee targets into key positions or trying to secure partnerships with other firms.

Business plans often vary depending on your target audience, the scope, and the goals for the plan. Startup plans are the most common among the different types of business plans. A start-up plan is used by a new business to present all the necessary information to help get the business up and running. They are usually used by entrepreneurs who are seeking funding from investors or bank loans. The established company alternative to a start-up plan is a feasibility plan. A feasibility plan is often used by an established company looking for new business opportunities. They are used to show the upsides of creating a new product for a consumer base. Because the audience is usually company people, it requires less company analysis. The third type of business plan is the lean business plan. A lean business plan is a brief, straight-to-the-point breakdown of your ideas and analysis for your business. It does not contain details of your proposal and can be written on one page. Finally, you have the what-if plan. As it implies, a what-if plan is a preparation for the worst-case scenario. You must always be prepared for the possibility of your original plan being rejected. A good what-if plan will serve as a good plan B to the original.

A good business plan has 10 key components. They include an executive plan, product analysis, desired customer base, company analysis, industry analysis, marketing strategy, sales strategy, financial projection, funding, and appendix. Executive Plan Your business should begin with your executive plan. An executive plan will provide early insight into what you are planning to achieve with your business. It should include your mission statement and highlight some of the important points which you will explain later. Product Analysis The next component of your business plan is your product analysis. A key part of this section is explaining the type of item or service you are going to offer as well as the market problems your product will solve. Desired Consumer Base Your product analysis should be supplemented with a detailed breakdown of your desired consumer base. Investors are always interested in knowing the economic power of your market as well as potential MVP customers. Company Analysis The next component of your business plan is your company analysis. Here, you explain how you want to run your business. It will include your operational strategy, an insight into the workforce needed to keep the company running, and important executive positions. It will also provide a calculation of expected operational costs. Industry Analysis A good business plan should also contain well laid out industry analysis. It is important to convince potential investors you know the companies you will be competing with, as well as your plans to gain an edge on the competition. Marketing Strategy Your business plan should also include your marketing strategy. This is how you intend to spread awareness of your product. It should include a detailed explanation of the company brand as well as your advertising methods. Sales Strategy Your sales strategy comes after the market strategy. Here you give an overview of your company's pricing strategy and how you aim to maximize profits. You can also explain how your prices will adapt to market behaviors. Financial Projection The financial projection is the next component of your business plan. It explains your company's expected running cost and revenue earned during the tenure of the business plan. Financial projection gives a clear idea of how your company will develop in the future. Funding The next component of your business plan is funding. You have to detail how much external investment you need to get your business idea off the ground here. Appendix The last component of your plan is the appendix. This is where you put licenses, graphs, or key information that does not fit in any of the other components.

The business model canvas is a business management tool used to quickly define your business idea and model. It is often used when investors need you to pitch your business idea during a brief window.

A pitch deck is similar to a business model canvas except that it makes use of slides in its presentation. A pitch is not primarily used to secure funding, rather its main purpose is to entice potential investors by selling a very optimistic outlook on the business.

Business plan competitions help you evaluate the strength of your business plan. By participating in business plan competitions, you are improving your experience. The experience provides you with a degree of validation while practicing important skills. The main motivation for entering into the competitions is often to secure funding by finishing in podium positions. There is also the chance that you may catch the eye of a casual observer outside of the competition. These competitions also provide good networking opportunities. You could meet mentors who will take a keen interest in guiding you in your business journey. You also have the opportunity to meet other entrepreneurs whose ideas can complement yours.

Exlore Further

12 Key Elements of a Business Plan (Top Components Explained)
13 Sources of Business Finance For Companies & Sole Traders
5 Common Types of Business Structures (+ Pros & Cons)
How to Buy a Business in 8 Steps (+ Due Diligence Checklist)

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Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.

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One-Page Business Plan Templates

One-Page Business Plan Templates for Entrepreneurs

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

Having a business plan is a must , whether your goal is to start a one-person freelancing business or a multi-million dollar enterprise. However, if you are looking to start a simple product or service business as a sole proprietor or one-person corporation you don't need a 50-page business plan . A shorter plan will suffice. A quick and easy one-page business plan templates can get you started.

If your business is a partnership or requires multiple employees, you may need a more robust business plan. Similarly, a one-page plan will not be sufficient if you are in need of debt or equity financing and wish to impress financial institutions or potential investors. Lenders and investors will require you to provide more in-depth information in the plan such as:

Your relevant industry background, business, and management experience
A more thorough description of your target market , proof of sufficient demand for your products or services, and how you will meet that demand and turn a profit
Thorough analysis of the competition and how you will compete in the marketplace
Detailed, realistic financial projections , including projected income statements, cash flow projections, and breakeven analysis
An in-depth operating section with details on facilities, leases, equipment, and staffing.

Step-by-step guidance on how to write a business plan can lead you through each section of a full-sized plan.

Keep in mind that a business plan is a living document and you can always start with a one-page plan and enlarge it with additional detail as required. You may be able to articulate the business overview, vision , objectives, and concise action items in a single page, but you might want more detail in the financial and marketing sections. For example, you might want to add an extra page to your pricing strategy section for income and cash flow statements and another for breakeven analysis in advertising and promotion.

Structure of a Business Plan

A one-page business plan needs to provide concise answers to several basic questions that must be addressed such as:

What is the need for your product or service?
What is your competition and how will you differentiate yourself in the marketplace ?
How will you make money, for example, in terms of sales versus expenses?
How will you market your business?
How will you get started? What are your capital requirements?

How to Use the Templates

The sample templates can be copied into a Word, Excel or similar office document by selecting the text and using copy/paste—using Windows, outline the text to be selected with the mouse, and hit CTRL-C to copy and CTRL-V to paste.

One-Page Business Plan Template for a Service Business

This template is suitable for freelance businesses that provide services, such as consultants, graphic designers, landscapers, and delivery services. For a one-page plan, the answers to questions should be one or two sentences.

Business Planning Template -- Service

	This section should articulate your hopes and dreams for the business. You can write a . For example: What are you building? What do you see this business becoming in x years? How do you plan to grow the business and to what degree? For example, will you hire employees, open up branch outlets, or take the business public? Do you eventually plan to sell the business for profit or to provide money for your retirement?
	The business overview or should describe how you intend to achieve your vision. For example: What services will you provide? What is your —who will buy your services? How will your service offerings address the needs of customers, for example, what is your unique selling proposition? How will you provide your services? Will you offer your services online, through your , or at a business location?
	The pricing strategy section needs to demonstrate how your business will be profitable. Summarize your projected revenue and expenses: How much will you charge for your services? Briefly describe how your pricing will be competitive enough to attract customers but be high enough to generate a profit after subtracting expenses. Consider and pricing strategies.
	This section describes how you intend to get the word out to customers about your services. For example: What are the most efficient ways to market your services? For example, will you market them via a business website, email, social media, or newspapers? Will you use methods such as pricing discounts for new customers? What marketing materials will be used—business cards, flyers, or brochures? What about referrals?
	This section lists your objectives and metrics for success by time frame, as well as potential questions or challenges. For example: Capture 20% of the local market share by year end Gain five steady customers in the first six months of operation Earn a net income of $50,000 for the first fiscal year List any obstacles or concerns, for example: Winter season or poor spring weather reduces demand for landscaping services.
	Briefly describe the action items needed to achieve your objectives, using milestone dates. For example: By "date" a fully-equipped home office will be completed. By "date" business licenses and acquired. By "date" purchase of delivery van negotiated with dealer. By "date" launch with description of services and price list. By "date" social media marketing plan in place and potential customers connected via Facebook and LinkedIn. By "date" subscribed to cloud-based accounting software and setup customer invoice templates. Describe possible solutions for any potential obstacles: If landscaping services cannot be delivered due to bad weather, look into providing other services such as snow clearing or tree pruning.

One-Page Business Plan Template for a Product Business

This template is suitable for businesses that sell products, such as food services, beauty products, and bike shops. For a one-page plan, the answers to questions should be one or two sentences.

Business Planning Template -- Product

	This section should articulate your hopes and dreams for the business. You can write a vision statement. For example:
	The business overview or mission should describe how you intend to achieve your vision. For example: — —
	Demonstrate how your business will be profitable by summarizing your projected revenue from product sales minus your expenses: Consider and pricing strategies.
	Briefly outline the marketing plan for your products: advertise your products business website social media —business cards brochures referrals
	List your objectives and metrics for success by time frame, as well as potential questions or challenges. For example: List any obstacles that may prevent you from achieving your objectives, for example:
	Briefly describe the action items needed to achieve your objectives, using milestone dates. For example: wholesalers social media marketing plan LinkedIn List any obstacles or concerns and how you intend to overcome them. For example:

How to Write a Business Plan for a Sole Proprietorship

Small Business
Business Planning & Strategy
Write a Business Plan
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How to Write a Construction Business Plan

How to write a business plan template for a cable channel, how to evaluate the feasibility of a business.

Preparing a Three-Year Business Plan
What Is the Role of a Business Plan in Getting Venture Capital Funding?

A business plan for a sole proprietorship is just like any other business plan. The main difference in business plans, in general, is the purpose. If you are writing a plan to organize your existing small company, focus on how your company operates and your goals for the future. If you will use it to obtain funding, your focus should be how you will make profits by supplying a commercial need.

Research Your Market

Start your research by describing your target or best customers by gender, age, income level, buying habits and residential location. Then look at your competition. Compare your company to your competition in terms of product offerings, service, prices, marketing, brand image and profitability. This gives you information for establishing the future direction you want your company to take, goals for expansion, product lines, service improvements, marketing to increase market share and ways to increase profitability. If you are a startup business, researching your market helps you develop your business idea, initiate good practices from the start and position your launch to attract the attention of your target market. It also gives you an argument that your company can fill a niche that will result in profits, which is important if you are going after funding.

Sole Proprietorship

There are special problems faced by a sole proprietorship operated by one person. The biggest problem is that you can't do everything. While examining your market, look for outside services that are geared to helping you compete with larger companies. These might be telephone answering services and business center offices that supply office space, office machines, administrative services and conference rooms. The Internet can provide inexpensive, simple-to-use marketing services and other outsourced services to expand your business reach. These are important considerations for the operations section of your business plan.

Develop Your Idea

Use your market research to solidify your vision for your company. Write a one or two sentence mission statement that addresses what you do, for whom, when, where, why and how. Then build on that. Establish in detail how the company operates, your suppliers, sales agents, cost of goods, price points, marketing strategy and growth plans. The more detailed you express this vision, the more likely you will see holes in your plan, which is one of the benefits of writing a business plan; it enables you to solve problems before you encounter them.

Research Your Costs

Make a list of every expense you encounter including rent, employees, travel, legal services, business licensing, insurance, inventory, sales costs, marketing costs and delivery costs. Business plan software is a good source of spreadsheet programs that allow you to plug in these costs to see what kind of revenues you must generate for profitability. These programs also print out a good presentation of your financial projections for use in obtaining funding.

Write the Plan

Your business plan should be shorter than 50 pages and should include the following sections: executive summary, which is written last; description of industry, including how you fit in; business model, describing your products and services; target market, describing who will buy from you and why; marketing model, describing how you will reach your target market; revenue model, estimating revenues and discussing how you will achieve those estimates; management, listing the bios and skills your managers bring to the company as well as your outside advisory board; and your financial projections, which consist of spreadsheets including a profit and loss statement, sales projections, personnel projections, cash flow and balance sheet. Include a discussion of how you arrived at these financial projections and the assumptions you used.

SBA.gov: How to Write a Business Plan
Entrepreneur: An Introduction to Business Plans

Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.

What factors make the difference between a good business plan & an excellent one, how to write a business plan for a food truck business, basic business plan structure, how to write a competitive edge for business, how to write a business plan for an equine facility, how to design an effective business plan, how to plan & grow a business venture, main steps in business planning, how to prepare business plans, most popular.

1 What Factors Make the Difference Between a Good Business Plan & an Excellent One?
2 How to Write a Business Plan for a Food Truck Business
3 Basic Business Plan Structure
4 How to Write a Competitive Edge for Business

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Business plan templates

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What is a business plan?

A business plan is a document that helps small business owners determine the viability of their business idea. Combining market research and financial analysis, a professional business plan helps startup CEOs and potential investors determine if the company can compete in the target market.

Typically, a good business plan consists of the following:

Executive summary
Company description
Mission statement
Product and services
Marketing plan
Operations plan
Management organization
Financial plan
Conclusion & appendix

Every section involved in a business plan is designed to help startup businesses reach their target market.

A business plan asks founders and entrepreneurs to detail their business strategy in a step-by-step process that makes sense from an operational perspective. This is essential if a startup is seeking a business loan or an investment from a venture capital firm.

However, even small businesses that are already economically viable can benefit from creating a business plan, since it encourages business owners and their management teams to examine their business model and reevaluate the best ways to reach their target customers.

Should I use a business plan template?

Yes. If you’ve never written one, a business plan can be challenging to write.

Creating a successful plan that you can use to grow your small business can require weeks of market analysis and financial preparation. You may spend time using Microsoft Excel or Powerpoint in order to create documentation which better supports our operational decisions.

However, almost every professional business plan is structured in the same way and most ask for the same information. Because of this, using a business plan template is advisable to save time, money, and effort.

Business plan templates for free

Rather than spending time trying to figure out how to write a business plan , use a free template as a guide to completion.

Business plan templates from PandaDoc can help you reach an effective go-to-market strategy even faster by asking you to provide all the relevant information you need when creating an effective business plan.

Grab a free template to get started!

Frequently asked questions

How many pages should my business plan be.

This depends on the kind of business plan you need to write and how you intend to use the plan that you create.

For example, a plan for a small business seeking potential investors or a business loan will need to provide income statements, cash flow statements, and a balance sheet (usually for a three-year or five-year forecast period).

These financial statements can be omitted if a small business owner isn’t seeking funding and is instead planning to use their business plan as a guiding document for themselves and their management team members.

Some business plans may only run a few pages. Fully-developed business plans can be as long as 50 pages. Much of this depends on the type of business, the operational strategy, and the level of detail that goes into developing the business plan.

Who needs a business plan?

Every business should have a business plan. This is an essential guidance document for any founder or CEO.

Good business plans help a company determine the viability of its place in the market and can help the business develop better strategies for differentiating itself from its competitors.

Business planning also forces business owners to evaluate their marketing strategy, the cost of customer acquisition and retention, and how they plan to grow their business over time.

What is the best business plan template?

Business plans come in all shapes and sizes. The best business plan template for your business is one that you understand and that matches the size and legal structure of your operation.

If you’re a sole proprietor, a business plan template designed for a big corporation probably doesn’t make sense. However, a business plan that helps you build an effective roadmap to grow your business while protecting your intellectual property is a good starting point.

PandaDoc offers specialized business plan templates for common industries along with tips to help you get started with business planning.

Should I hire someone to write my business plan for me?

No. You’ll find freelance writers and business strategy companies out there who are happy to write your business plan for a fee. These resources can guide you through the process, but you should write (or be heavily involved in) the creation of your business plan.

The reason for this is simple: You know the most about your business, and your business needs you to succeed.

A writer can work with you to make your business plan sound better to investors, and a consultant can help you fill in knowledge gaps — like how to conduct a SWOT analysis — and point out weaknesses in your plan. But, at the end of the day, you need to use the business plan to pitch investors and run your business.

Those ideas and guiding principles aren’t something you can outsource.

Should I use business planning software?

Software isn’t required when creating an effective business plan. Most business planning software is designed to help you navigate the outlining and writing process more effectively.

You don’t need software to write a professional business plan, but a solid template can help you get started. Download a free template from PandaDoc today and take your business to the next level.

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Start » startup, how to choose the right business entity: sole proprietorship.

A sole proprietorship is the most common U.S. legal business structure, with minimal startup costs and various tax perks.

The Internal Revenue Service (IRS) requires every business to classify itself as a specific type of legal entity. These entities come in five forms – partnership, corporation, limited liability company (LLC), S corporation and sole proprietorship – and each comes with its own legal and tax considerations.

Declaring your business as a sole proprietorship is easy to set up, and if you are working as a consultant, freelancer or other singular business, you may already be operating as one without realizing it.

If you're interested in establishing a sole proprietorship (or if you're already running one), here's a basic overview of what this legal business structure entails.

What is a sole proprietorship?

A sole proprietorship is the simplest and most common business structure in the United States. Sole proprietorships are run by a single individual who is responsible for all business assets, profits and liabilities.

Because this type of entity is so easy to form, administrative startup costs are minimal. The law does even not require you to set up a formal structure before launching your business. If you are the only owner and are operating under your legal name (not under a DBA name), you are automatically considered a sole proprietor by the IRS. The only legal expenses that may apply are for any licenses and permits you may need, depending on your industry.

[Read: A Guide to Business Licenses and Permits ]

Pros and cons of sole proprietorship

Two of the many benefits of a sole proprietorship include:

Full control over the business . Since you are the sole owner, you make all of the business decisions.
Simple tax preparation . Known as pass-through taxation, your sole proprietorship does not need to be taxed separately from your Social Security number, which means that you simply need to report your business profits and losses to the IRS on a Schedule C form and Form 1040 and file your taxes as normal. As an added bonus, sole proprietor tax rates are the lowest among all business structures.

Of course, some of these perks can also lead to potential disadvantages, including:

Full financial responsibility . As the sole owner and decision maker, you alone are liable for any financial losses and debts that may occur within your business.
Difficulty with finding investors . The SBA also notes that it's difficult for sole proprietors to raise money. Banks view sole proprietors as particularly risky since the business's success and failure depends on a single person. You're also unable to sell stocks in a sole proprietorship, which may limit your opportunities to bring on investors .

When your business is just starting out and plans are to remain as a business of one, sole proprietorship makes sense.

Who should operate as a sole proprietor?

There are certain types of businesses that are well-suited for sole proprietorship status:

Business consultants and speakers . Professionals in this space may take on a few gigs a year, or operate as a full-time business.
Freelancers. Photographers, copywriters, web developers and more are typically a business of one contracted on a per-project basis by their clients.
Home health care specialists. Home care assistants typically work as contractors and provide services to clients in their homes.
Professional cleaning . Residential and commercial cleaning can easily be done as a side job or a full-time business.
Landscapers . These businesses often begin with one person who does all the work. As demand increases, the sole proprietor may hire employees or outside contractors for assistance.

Businesses like these are ideal sole proprietorships because they are inexpensive to start and typically don’t need investors or financing to cover overhead expenses like storefronts or specialized equipment. They are also primarily built on the owner's personal reputation and skill set.

Is a sole proprietorship right for your business?

When your business is just starting out and plans are to remain as a business of one, sole proprietorship makes sense. If you have big growth plans for your business, you may wish to consider a different legal structure, since sole proprietorships can come with financial, business and legal risks. However, if you plan to keep your business small, you can operate as a sole proprietorship indefinitely.

[Read: Getting Ready to Launch? How to Choose the Right Business Structure ]

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Business Plan Tutorial: Types of Business Ownership for 2024

The decision to own and operate a business can be both exciting and daunting. Business ownership is a multifaceted concept that requires careful planning, preparation, and execution. In this tutorial, we will explore the different types of business ownership and provide a comprehensive guide to creating a successful business plan.

Overview of Business Ownership

Business ownership refers to the legal ownership and control of a business entity. There are several types of business ownership structures, including sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Each structure has its own unique advantages and disadvantages, depending on the nature of the business and the goals of the owner.

For instance, sole proprietorships are the simplest form of ownership and are owned and operated by a single individual. They are easy to set up and require minimal regulatory compliance. However, sole proprietors are personally liable for all the debts and obligations of the business, which can be a significant drawback.

On the other hand, corporations are complex legal entities established under state law. They provide limited liability protection to their owners, meaning that the shareholders are not personally liable for the company’s debts and obligations. However, corporations are subject to significant regulation and require a high level of administrative and legal compliance.

Why Is Business Ownership Important?

Entrepreneurship and business ownership play a critical role in the global economy. Small businesses are the backbone of many local economies, providing jobs and driving innovation and economic development. Moreover, owning a business can provide financial independence, personal fulfillment, and the opportunity to make a positive impact on society.

However, owning a business is not without its challenges. Developing a successful business requires careful planning and execution, as well as a deep understanding of the market, competitors, and industry trends. Moreover, business owners must be prepared to navigate a complex regulatory landscape and manage risks associated with legal liabilities and financial fluctuations.

Business ownership is an essential component of economic growth and provides individuals with the opportunity to create wealth, pursue their passions, and make a positive impact on their communities. However, it requires careful planning, preparation, and execution to succeed in today’s highly competitive market. In the following sections, we will provide a step-by-step guide to creating a successful business plan, including choosing the right ownership structure, conducting market research, developing a marketing strategy, and securing funding.

Sole Proprietorship

A. definition of sole proprietorship.

A sole proprietorship is a type of business ownership where the business is owned and operated by one person. It is the simplest and most common form of business entity in the United States. The owner of the business has complete control over all aspects of the company, including finances, operations, and decision-making.

B. Advantages of Sole Proprietorship

One major advantage of a sole proprietorship is that it is easy and inexpensive to set up. The owner does not have to file any formal paperwork or pay any registration fees. Another advantage is the flexibility that the owner has in running the business. Because there are no partners or shareholders, the owner has complete control over the direction of the business and can make decisions quickly and without any consultation.

A sole proprietorship also offers tax benefits. The owner of the business can deduct all of the business expenses from their personal income taxes. This can include things like office supplies, travel expenses, and even a portion of their home expenses if they work from home.

C. Disadvantages of Sole Proprietorship

While there are many advantages to operating a sole proprietorship, there are also some disadvantages. One major disadvantage is that the owner of the business is personally responsible for all of the debts and liabilities of the business. This means that if the business runs into financial trouble or is sued, the owner’s personal assets may be at risk.

Another disadvantage is that it can be difficult to raise capital for the business. Because the owner is the only investor in the company, they must rely on their own savings or loans from family and friends to fund the business.

D. Examples of Sole Proprietorship

Some examples of sole proprietorships include small businesses such as freelance writers, consultants, and hairstylists. These types of businesses are typically run out of the owner’s home or a small office space and require little investment to get started.

Another example of a sole proprietorship is a food truck vendor. The owner of the business is responsible for everything from purchasing the food and supplies to cooking and selling it to customers.

A sole proprietorship can be a great option for entrepreneurs who want complete control over their business and are comfortable with the risks that come with being personally responsible for its debts and liabilities. However, it is important to carefully consider the advantages and disadvantages before deciding if this type of business ownership is right for you.

Partnership

Partnership is a business structure that involves two or more individuals who share ownership and management responsibilities, as well as the profits and losses of the business. There are different types of partnerships, each with unique characteristics, advantages, and disadvantages.

A. Definition of Partnership

A partnership is a legal agreement between two or more persons who agree to carry on a business with a view to making a profit. The partners agree to share in the management of the business, as well as the profits and losses.

B. Types of Partnership

There are three types of partnership, including:

1. General Partnership

General partnership is the most common type of partnership, where all partners share equal responsibility and liability for the business. Each partner contributes to the capital and takes an active role in managing the business.

2. Limited Partnership

Limited partnership is a form of partnership where one or more partners have limited liability and do not participate in the day-to-day management of the business. They are called silent partners and only contribute capital to the business.

3. Limited Liability Partnership

Limited Liability Partnership (LLP) is a type of partnership where each partner is only liable for their own acts and not those of their partners. LLPs are common among professional service firms such as lawyers and accountants.

C. Advantages of Partnership

There are several advantages to forming a partnership, including:

Shared responsibility and resources: Partners can share responsibilities and resources, as well as leverage their respective expertise and networks to grow the business.

Pooling of funds and capital: Partners can pool their resources and capital to start and grow the business, which may be especially beneficial in cases where individual partners have limited financial resources.

Flexibility: Partnerships can be more flexible than corporations when it comes to management and decision-making, as partners have more freedom to make decisions and run the business as they see fit.

D. Disadvantages of Partnership

There are also some disadvantages to forming a partnership, including:

Unlimited liability: General partners have unlimited liability, which means that they are personally liable for the debts and obligations of the business.

Potential for disagreements: Partnerships can be challenging when partners have different goals, objectives, or work styles, which can lead to disagreements and conflicts.

Limited growth potential: Partnerships may have limited growth potential compared to corporations, especially when it comes to raising capital or attracting investors.

E. Examples of Partnership

Some examples of successful partnerships include:

Ben & Jerry’s: The famous ice cream brand was founded by Ben Cohen and Jerry Greenfield, who started the business as a partnership in 1978.

Hewlett-Packard: The technology giant was founded by Bill Hewlett and Dave Packard, who started the business as a partnership in 1939.

Limited Liability Company (LLC)

A. definition of llc.

A Limited Liability Company (LLC) is a hybrid business entity structure that combines the flexibility of a partnership with the limited liability of a corporation. LLCs have distinct legal personalities, which means that they’re separate from the owners, known as members. LLCs have become popular among small business owners, as they offer the benefits of both sole proprietorships and corporations.

B. Advantages of LLC

The advantages of forming an LLC include:

Limited Liability : Members of an LLC are not personally liable for the debts or obligations of the company. In other words, their personal assets are protected from any legal action taken against the LLC.

Pass-Through Taxation : LLCs are taxed as pass-through entities, which means that profits and losses are reported on the individual tax returns of the members. This can lead to lower tax rates, as well as the ability to deduct losses against other income.

Flexibility : LLCs are flexible in terms of ownership structure and management. Members can be individuals or other entities, and they can choose to manage the company themselves or designate a manager.

Simplicity : LLCs have fewer formalities than corporations, including fewer required meetings and less complex record-keeping.

C. Disadvantages of LLC

The disadvantages of forming an LLC include:

Limited Life : LLCs have a limited lifespan that’s determined by the operating agreement. This means that the LLC may need to dissolve if a member chooses to leave the company or dies.

Self-Employment Taxes : Members of an LLC are subject to self-employment taxes, which can add up to a significant amount.

State Requirements : LLCs are subject to state regulations, which can vary depending on where the company is located. This can lead to additional costs and paperwork.

D. Examples of LLC

Some examples of LLCs include:

LLC for Freelance Writers : A freelance writer could form an LLC to protect their personal assets and take advantage of pass-through taxation.

LLC for Real Estate Investors : Real estate investors often form LLCs to limit their personal liability and take advantage of tax benefits.

LLC for Family Business Owners : Family business owners can use an LLC to simplify their governance structure and protect their personal assets.

LLCs offer the benefits of limited liability, pass-through taxation, flexibility, and simplicity. However, they also have some disadvantages, such as limited lifespan, self-employment taxes, and state requirements. Depending on the needs of the business, an LLC can be a great choice for a business owner looking to protect their personal assets while enjoying the tax benefits of a pass-through entity.

Corporation

A corporation, also known as a limited liability company, is a legal entity that is separate from its owners. It has its own legal rights and liabilities, can own property, enter into contracts, and can sue or be sued.

A. Definition of Corporation

A corporation is incorporated under state law and is considered a separate legal entity from its shareholders or owners. This means that the corporation can own property, enter into contracts, and conduct business in its own name.

B. Types of Corporation

There are several types of corporations, including:

C Corporations: These are the most common types of corporations and offer limited liability protection to shareholders. They are taxed as a separate entity and can issue stock to raise capital.
S Corporations: These are similar to C corporations, but they have a special tax designation that allows them to avoid double taxation.
B Corporations: These are businesses that are certified for their social and environmental responsibility in addition to their financial performance.
Non-profit corporations: These are corporations that are organized for charitable or educational purposes and are exempt from paying taxes.

C. Advantages of Corporation

There are several advantages to forming a corporation, including:

Limited liability: Shareholders are not personally liable for the corporation’s debts or legal issues.
Ability to raise capital: Corporations can offer stock to raise funds for expansion or other business needs.
Perpetual existence: A corporation can exist indefinitely, regardless of changes in ownership.

D. Disadvantages of Corporation

There are also some disadvantages to forming a corporation, including:

Double taxation: C corporations are taxed as a separate entity, and then shareholders are also taxed on their individual income from the corporation.
More administrative work: Corporations require more paperwork and recordkeeping than other types of businesses.
Potentially complicated ownership structures: Corporations can have multiple shareholders and may involve complex ownership structures.

E. Examples of Corporation

Some well-known corporations include:

Microsoft Corporation
Coca Cola Company
Amazon, Inc.
McDonald’s Corporation

These corporations all have a large number of shareholders and have grown to become some of the largest companies in the world.

Cooperatives

A. definition of cooperatives.

Cooperatives are a type of business organization that is owned and controlled by the people who use its services or products. They are run on a democratic basis providing each member with an equal vote in the decision-making process.

Cooperatives may be formed for social, cultural, or economic purposes. However, the fundamental principles of cooperatives are that they are open to all people who share a common goal, who assume responsibility, and who participate in the business.

B. Types of Cooperatives

There are several types of cooperatives that may be formed. These include:

1. Consumer Cooperative

This type of cooperative is owned by the consumers who use its products or services. The purpose of a consumer cooperative is to provide high-quality products or services at a fair price to its members.

2. Producer Cooperative

A producer cooperative is owned by producers who share resources and expertise to produce and market products or services. This type of cooperative helps small-scale producers to compete effectively in the marketplace.

3. Worker Cooperative

A worker cooperative is owned and operated by its employees. The workers actively participate in the decision-making process and share in the profits of the business.

4. Housing Cooperative

A housing cooperative is a type of cooperative that provides affordable and sustainable housing for its members. Members own shares in the cooperative and have the right to occupy a unit within the housing facility.

C. Advantages of Cooperatives

There are many advantages of cooperatives, including:

Democratic structure and decision-making process
Shared expenses and risks
Improved bargaining power
Shared profits and benefits
Enhanced sense of community and cooperation

D. Disadvantages of Cooperatives

Despite the benefits, cooperatives also have some disadvantages, such as:

Limited access to capital
Difficulty in attracting new members
Time-intensive decision-making process
Difficulty in retaining members and keeping engagement levels high

E. Examples of Cooperatives

Some examples of successful cooperatives include:

Mondragon Corporation, a Spanish worker cooperative that is the largest in the world and has over 80,000 members
The Co-operative Group, a British consumer cooperative that operates various businesses including supermarkets, funeral homes, and legal services
Ocean Spray, an American producer cooperative that is owned by more than 700 cranberry farmers

Cooperatives can be a beneficial business ownership structure for those who share a common goal and are willing to participate actively in the decision-making process. However, they also have their limitations and may not be suitable for all types of businesses.

Franchising is a popular form of business ownership where one party, the franchisor, grants the franchisee the right to operate a business under their trademark, marketing, and operational support.

A. Definition of Franchises

A franchise is a legal agreement between the franchisor and the franchisee where the franchisor provides the franchisee with a proven business model to follow. The franchisee pays an initial fee and ongoing royalties to the franchisor in exchange for the use of the franchisor’s trademark, products, services, and operating system.

B. Types of Franchises

There are various types of franchises that a business can adopt. The most common include:

Product Distribution Franchise – This type of franchise allows the franchisee to sell a manufacturer’s products.

Business Format Franchise – This type of franchise provides the franchisee with complete guidance on how to run the business, including the operational system, marketing, training, and ongoing support.

Management Franchise – This type of franchise offers the franchisee the right to manage an existing business.

C. Advantages of Franchises

There are several advantages of owning a franchise, including:

Established brand and reputation
Proven business model
Ongoing support and training
Group purchasing power
Shared marketing and advertising costs

D. Disadvantages of Franchises

Although franchising has many advantages, it also has some disadvantages, including:

High initial franchise fees
Ongoing monthly royalties
Limited flexibility in decision-making
Limited product offerings
Restrictions on operations and marketing

E. Examples of Franchises

Some popular franchise examples include:

McDonald’s – a fast-food restaurant franchise
Subway – a sandwich and salad franchise
7-Eleven – a convenience store franchise
Anytime Fitness – a gym and fitness franchise

Franchising is a business model that offers many advantages and disadvantages to potential business owners. Understanding the different types of franchises and their pros and cons is essential to determine whether franchising is the right business ownership option for you.

Choosing the Right Business Ownership

When starting a business, one of the most important decisions you’ll make is choosing the right business ownership. There are several types of business ownership, including sole proprietorships, partnerships, corporations, and limited liability companies (LLCs). Each type has its own advantages and disadvantages, and choosing the right one depends on a variety of factors.

A. Factors to Consider

The first factor to consider when choosing the right business ownership is the amount of control you want over your business. For example, if you want complete control over your business, a sole proprietorship may be the best option. On the other hand, if you want to share control with others and have access to additional resources, a partnership or corporation may be a better choice.

Another factor to consider is the level of personal liability you’re comfortable with. Sole proprietors and partnerships have unlimited personal liability, which means that personal assets can be used to pay business debts. In contrast, corporations and LLCs offer limited personal liability protection.

Finally, you’ll also want to consider your long-term goals for your business. For example, if you plan to take your business public, a corporation may be the best choice. If you plan to keep your business small and family-owned, a sole proprietorship or LLC may be a better fit.

B. Legal Requirements

Once you’ve determined the type of business ownership that best fits your needs, you’ll need to comply with legal requirements. Each type of ownership has different legal requirements, such as registering the business name, obtaining necessary licenses and permits, and filing the appropriate tax forms.

It’s important to speak with an attorney to ensure all legal requirements are met and to avoid any legal issues down the line.

C. Tax Implications

Different types of business ownership also have different tax implications. For example, sole proprietors and partnerships are taxed as individuals, while corporations and LLCs are taxed as separate entities. The tax structure you choose will affect how much you pay in taxes and the types of deductions you can take.

To ensure you’re taking advantage of all available tax benefits, it’s important to consult with an accountant or tax professional.

D. Funding Considerations

The type of business ownership you choose can also affect your ability to secure funding for your business. For example, corporations and LLCs have access to more funding sources, such as venture capitalists and angel investors. In contrast, sole proprietors and partnerships may have a harder time securing funding.

Before deciding on a business structure, it’s important to consider how you plan to finance your business and choose a structure that aligns with your funding needs.

Choosing the right business ownership is a crucial decision that should not be taken lightly. By considering factors such as control, personal liability, long-term goals, legal requirements, tax implications, and funding considerations, you can make an informed decision that sets your business up for success.

How to Create a Business Plan for Each Business Ownership

When it comes to creating a business plan, the process may differ depending on your type of business ownership. In this section, we’ll guide you through creating a business plan for each of the following types of ownership:

A. Sample Business Plan for Sole Proprietorship

As a sole proprietor, your business is owned and operated by you alone. When creating your business plan, focus on your personal goals and objectives for the business, as well as its unique selling proposition. Here are a few key areas to include in your business plan:

Executive Summary: A concise overview of your business, including its purpose, target market, and financial projections.
Products/Services: A detailed description of the products or services you offer, including pricing and how they meet the needs of your target market.
Marketing Plan: An overview of your marketing strategy, including how you plan to reach your target market, your budget, and your timeline.
Financial Plan: A projection of your revenue, expenses, and profits for the first year, as well as a break-even analysis.

B. Sample Business Plan for Partnership

As a partnership, your business is owned and operated by two or more individuals. When creating your business plan, it’s important to clearly define each partner’s role and responsibilities. Here are a few key areas to include in your business plan:

Partnership Structure: A description of the roles and responsibilities of each partner, as well as how decisions will be made and profits will be split.

C. Sample Business Plan for LLC

As an LLC (limited liability company), your business is owned by one or more individuals who are protected from personal liability. When creating your business plan, focus on your unique value proposition and the benefits of your LLC structure. Here are a few key areas to include in your business plan:

LLC Structure: An overview of your LLC structure, including the roles and responsibilities of each member, as well as any operating agreements.
Marketing Plan: A detailed overview of your marketing strategy, including how you plan to reach your target market, your budget, and your timeline.

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How to start a small business

This guide will help you get your business up and running..

Terms apply to American Express benefits and offers. Visit americanexpress.com to learn more.

If you're launching your own business, you have a ton of questions that need to be answered: How do you name your business? How do you register it? Will people think your product is good enough to purchase? And how will you afford to get it off the ground when you still have bills to pay?

With the help of experts and entrepreneurs, we've created this guide to help you figure out the solutions to the above questions and more. Read on and find out what you need to do to successfully launch your small business.

Already have your business plan ready and just need help legally forming it? These companies can help .

Research your market

Formulate a business plan, the different types of business models, fund your business, pick a business name, create a website for your business, legally form your business, apply for a business license (if you need one), apply for an employer identification number (ein), consider business insurance, open a business bank account, launch your business.

It's great that you have a dream and ambition, but you need to make sure there's a market for whatever product you want to create.

"It's important to do that market research prior to spending any kind of money so you can make sure you have something," says Abby Mercado, a former venture capitalist and founder of Rescripted , a women's health media company.

When done right, market research can reveal your ideal customer's specific needs, as well as the solutions they've tried before, your competitors, the price your customers are willing to pay, and more.

How to use social media and real-life feedback for your market research

Social media can give you an idea of what your potential customers are talking about online. If you're planning to launch a dog food company, for example, searching Reddit or going through the comments on competitors' TikTok and Instagram accounts can yield valuable information about what your customer wants. This approach is often referred to as "social media listening."

But it's also important that you don't limit your research to just searching around online and social media. For example, when Mercado was doing market research for what would eventually become Rescripted, a media company focused on women's reproductive health, she reached out to a fertility clinic she was familiar with and got feedback from a doctor there. According to Mercado, the doctor loved her idea and introduced her to potential customers who gave her even more feedback.

Questions to ask for good feedback

Here are some thought starters around the types of questions that would be useful to ask your target customer:

Which brands (in your targeted market) have you purchased from in the last 3 months?
How satisfied are you with the products/solutions that already exist for this market?
What was your reasoning for purchasing from a competitor?
Which features are most useful to you?
How do you prefer to shop for this product/service?
At what price would you be unwilling to purchase this product?

You can also get more useful feedback if you're able to give people an example of your product. For instance, if you want to open up a bakery, maybe whip up a small batch of cookies and hand them out in your neighborhood in exchange for people answering some questions.

Friends and family can sometimes be a good place to start looking for feedback about your offerings, but make sure you're surveying your ideal customer. This is the person who will most likely compare your business to competitors before deciding to buy. So if you're opening a butcher shop but your mom's a vegan, consider getting feedback from someone else.

A business plan is a document that includes your business's goals and the framework you'll follow to achieve them. It can be a helpful document regardless of your business's size and whether this is your first business or your tenth.

One of the most useful functions of a business plan is that it keeps you and your team organized and on the same page. If you're launching your business with a partner or are hiring a senior leader, having a written document everyone agrees on can help smooth over arguments about strategy.

A business plan also provides a roadmap for how you need to market your business and earn revenue during different stages of its growth. By identifying certain milestones in your plan, you can get a general sense of whether your business is on track or if you need to make adjustments.

Finally, when you're applying for a business loan, grant or other types of funding, people may want to see your business plan before they give you money.

The Small Business Administration (SBA) suggests your business plan include the following:

An executive summary that provides basic information about your company and team, including what your product is and your company's mission.
A company description with more specific details about the market you serve and the advantages you believe you have that will give you an edge over the competition.
Trends or themes you're seeing in your target market.
The legal structure of your business and who will be on your team (also mention if you're flying solo).
An in-depth description of your product or service (including any patent filings and copyrights) as well as your marketing plan.
A declaration that you're seeking funding (if applicable). It can also be a good idea to include your financial projections with your funding request if you're approaching investors for your business.

The business model is the part of your business plan that breaks down how you'll make money.

There are many business models and plenty of examples of companies that have obtained success with each one. Picking the right one depends on the nature of your business (among other things), since what works for a tech start-up might not fly for a food truck.

Service (Fee-for-service)

As the name may suggest, a service-based business model involves carrying out a task or service in exchange for a fee. The fee may be paid as a fixed sum or an hourly rate. Common small business examples using a fee-for-service model include consulting, coaching or freelance work.

Subscription

A subscription business model involves charging a fixed fee on a recurring basis in exchange for a product or service. This is a common model among online service providers, but it can also be used to sell physical products, such as subscription boxes.

This business model involves introducing customers to a free, basic version of the service in the hopes that they'll upgrade to a paid premium version with more features. Because this business model makes it possible for some customers to simply stick with the free version, it isn't ideal for product-based businesses. One example of a freemium business model is an app with free basic features and premium features that are unlocked when you pay to upgrade your plan.

This type of business model involves selling a physical item in exchange for money. Products can either be sold in-person (think: bakery, ice cream shop, stationery store, etc.) or online as an e-commerce brand. It can be costly to produce a product so the goal is to make the item for a low cost and sell it at a higher price.

You're going to need some type of funding to get your business up and running. Those costs can range from the equivalent of a night out to the price of a midsize sedan (and more) depending on your business, but you have plenty of options to secure your seed money.

These are the most common ways to finance your small business idea.

Bootstrapping

Best for: Businesses with low startup costs; founders with enough personal savings

Bootstrapping is perhaps the simplest way to fund your business because it involves spending your own money to get started. You don't have to apply for funding or worry about paying back a lender.

Bootstrapping works best when you have low start-up costs (or if you have a high amount of personal wealth). The biggest risk with bootstrapping is sinking too much money in the business and then coming up short in your personal life when you need cash for an emergency or to cover the essentials.

If you aren't in a place where you feel comfortable assuming the risk of bootstrapping, there are other options to consider.

Crowdfunding

Best for: Raising small amounts

Crowdfunding involves asking multiple people to provide small amounts of money to help you reach a larger funding goal for a business idea. So if you need $5,000, you might have 200 people giving you small amounts of money to help you reach that goal.

With crowdfunding, you typically don't have to pay back the people who gave you money (though some crowdfunding platforms make you give the cash back if you don't reach your funding goal within a certain amount of time).

When Dr. Jenny Woo was working to launch Mind Brain Emotion , a deck of skill-building cards, she used a combination of bootstrapping with a small amount of money and crowdfunding through Kickstarter.

"For me personally, Kickstarter was the lowest risk," she explains. "The worst risk is you don't get funded. It's also less time-consuming than if you were to pitch [to investors] or try to get a loan."

Crowdfunding can be a good way to close small funding gaps that you can't afford to fill with your personal savings. However, keep in mind that many campaigns may only last 30 to 60 days on the platform so you have to be realistic about how much money you can raise in that time.

Some crowdfunding platforms charge a platform fee. The fee is charged as a percentage of the total funds you raise and it can range from 5% to 12%. This obviously eats into the money you can walk away with.

Best for: Businesses that don't need urgent funding; businesses that can meet any usage rules

A grant is a lump sum of money awarded to a business or organization that doesn't need to be paid back. Business grants are commonly provided by government organizations, nonprofits and corporations.

You'll need to fill out an application to be considered. Some grant application processes may have lengthy approval and disbursement timelines so even if you qualify it may take some time to receive the funds. This is why grants may not be for everyone. If you need money more urgently to fund product development, you may need to look at other options.

While it can take a while to be awarded grant money, it can be well worth it if you don't need to dip into your savings or take on debt for your business.

Also keep in mind that some grants have strict rules on how you can use the funding. For instance, some grants may only be used to fund research and development while others can only be used for purchasing equipment.

Small business loans

Best for: Founders who need a large lump sum of money upfront and can afford to make small, incremental repayments

Unlike a grant, a small business loan is money that's provided by a lender that must be paid back within a certain amount of time. The terms of your small business loan can depend on your credit score, the type of business you're running and how much money you need.

You'll also need to pay interest in addition to the principal amount. So before you decide to take on a small business loan, make sure you can afford to pay it back without defaulting on your balance.

CNBC Select ranks OnDeck as one of the best small business loan lenders for its same-day funding service, and Kiva for its 0% interest crowdfunded microloans.

Types of loans

Better business bureau (bbb) rating, loan amounts.

$5,000 to $250,000

Up to 24 months

Minimum credit score needed

Minimum requirements.

In business at least 1 year, $100,000 annual revenue, business bank account

Terms apply.

Potential for same-day cash disbursement (only available in certain states, for term loans up to $100,000)
Top-tier A+ rating with the BBB
Low minimum credit score
Fixed monthly payments
100% Prepayment Benefit option, so you can pay your loan off early without any penalty or fee
Doesn't lend to businesses in Nevada, North Dakota or South Dakota
Early prepayment fee if you don't qualify for the 100% Prepayment Benefit

Peer-to-peer crowdfunded loan

$1,000 to $15,000

Up to 3 years

No minimum credit score required

You must be 18, live in the U.S., use this loan for business purposes, not currently in foreclosure, bankruptcy or have any liens, and have a small number of your friends and family willing to make a loan to you (Nevada and North Dakota residents are not ineligible)

Ability to borrow with no interest
Loans are geared toward borrowers who are unbanked and have trouble qualifying for financial products
Ability to market your product to 1.6 million lenders on Kiva
You need to prove your creditworthiness by inviting friends and family to lend to you
It can take a while to receive your loan since investors need to raise money
No BBB rating

Small business credit card

Best for: Founders who want access to a line of credit for small expenses over time

A small business credit card also involves taking on debt to finance your business costs. Unlike a loan, a business credit card is a form of revolving credit that you can use repeatedly (so long as you make good on your payments). This can make it more flexible than a loan, where you need to apply for a lump sum upfront, requiring you to know exactly how much money you'll need from the very beginning.

The Blue Business® Plus Credit Card from American Express is a strong option for business credit because it offers a 0% intro APR period of 12 months on purchases from the date of account opening (18.49% - 26.49% variable APR after that; APR will not exceed 29.99%). ( See rates and fees ).

The Blue Business® Plus Credit Card from American Express

Earn 2X Membership Rewards® points on everyday business purchases up to $50,000 per year, then 1X point per dollar

Welcome bonus

Earn 15,000 Membership Rewards® points after you spend $3,000 in eligible purchases on the Card within your first 3 months of Card Membership.

0% for 12 months on purchases from date of account opening

Regular APR

18.49% - 26.49% variable; APRs will not exceed 29.99%

Balance transfer fee

Foreign transaction fee, credit needed.

See rates and fees , terms apply.

No annual fee
Straightforward rewards program
2.7% foreign transaction fee

The Ink Business Unlimited® Credit Card is also a solid contender since it doesn't charge an annual fee and you'll earn 1.5% cash back on purchases for your business.

Ink Business Unlimited® Credit Card

Earn 1.5% cash back on every purchase made for your business

Earn $750 bonus cash back after you spend $6,000 on purchases in the first 3 months from account opening

0% for the first 12 months from account opening on purchases; N/A for balance transfers

18.49% - 24.49% variable

Either $5 or 5% of the amount of each transfer, whichever is greater

Good/Excellent

Free employee cards
Simple cash-back program
Special financing offer for purchases
3% fee charged on purchases made outside the U.S.

Which funding method is right for you?

When deciding which funding route to take, you probably want to spend as little of your own money as possible. In this case, you might first consider crowdfunding and applying for grants since you don't need to pay back this money. In the best-case scenario, you'll raise all the money you need for start-up costs without spending a dime of your savings.

But it's more likely that crowdfunding or grants will cover some of your expenses, but not everything. If you need to save some money to bridge that funding gap, consider a high-yield savings account . An FDIC-insured account is one of the safest places to put your cash, and your funds will earn interest while remaining easily accessible. The Marcus by Goldman Sachs High Yield Online Savings account, for example, doesn't charge any monthly fees, overdraft fees, or excessive transaction fees. LendingClub High-Yield Savings also has no monthly fees, and doesn't require a minimum balance to earn its high APY.

Marcus by Goldman Sachs High Yield Online Savings

Annual percentage yield (apy), minimum balance, monthly fee, maximum transactions.

At this time, there is no limit to the number of withdrawals or transfers you can make from your online savings account

Excessive transactions fee

Overdraft fee, offer checking account, offer atm card.

No minimum balance or deposit
No monthly fees
No limit on withdrawals or transfers
Easy-to-use mobile banking app
Offers no-fee personal loans
Higher APYs offered elsewhere
No option to add a checking account
No ATM access

LendingClub High-Yield Savings

No minimum balance requirement after $100.00 to open the account

Overdraft fees

Taking on debt to start your business should be a last resort and only used after careful consideration. You must be confident that you can pay back in full any money you borrow for your business.

Your business's name communicates to the world who you are and what you can do — so it's important to pick a name that lets you put your best foot forward.

But there are also some legal considerations to make when picking the right business name. For instance, you must avoid selecting a name that sounds too similar to your competitors' names. You can use the Trademark Search tool from the United States Patent and Trademark Office to see if your desired business name has already been trademarked by another business.

Additionally, you may also need to double-check any laws around naming a business for your state. Some states may require you to add certain "identifiers" to the end of your business name if you're a registered legal entity. Identifiers could include words like "Inc," or "Corp."

If you're confused about where to start, services like LegalZoom can help you get started in the right direction. LegalZoom lets you set up your business legally and will check that your desired business name is available for you to use.

From $35 to $279+

App available?

Standout features.

LegalZoom offers all sorts of legal document templates online so users can avoid having to hire an outside lawyer. Its downloadable wills, living wills and financial power of attorney documents make it easy to estate plan. LegalZoom also has its own network of attorneys that customers can utilize to ask questions, etc.

Your business needs a website to let potential customers know where to find you online and how to contact you. Your website's complexity will often depend on the type of business you're running. If you have a coaching or consulting business, a simple website where you can talk about who you are and what services you offer works perfectly.

Creating a simple website on your own is relatively straightforward, especially when you use a service like Squarespace or Wix that lets you use premade templates without having to learn to code.

Squarespace

Plans start at $16/month when you pay annually

Free trial available?

14-day free trial

Squarespace offers several features for building yourself a website, including a wide variety of templates to choose from, support from a Squarespace web designer, marketing tools, a logo maker and more. Its offerings cater to several industries and website uses including blogs, portfolios, fitness, beauty, restaurants, artists, photographers and weddings to name a few.

Plans start at $17/month

No free trial but Wix offers a 14-day money back guarantee

Squarespace offers over 900 website templates, and a website building tool that leverages AI to design a site based on your desired customizations.

However, if you're selling goods and your website is your online storefront, you'll need more functions such as accepting (and processing) customer payments, collecting contact information, displaying your goods in an easy-to-navigate user interface and more. You can still use services to build a more complicated e-commerce website on your own, but it may be worth hiring an expert depending on your skill, time and patience.

Here are some signs that you may want to hire a website designer instead of creating the website yourself:

You need advanced features to help you sell products online.
You need a long-term relationship with a designer to help your site evolve as your business grows.
You're too busy to do it yourself and are comfortable spending the money to have someone else do it.

One key decision to make that will have far-reaching consequences with taxes and more is your business's legal structure. The three most common legal structures that pertain to small businesses are a sole proprietorship, a limited liability company (LLC) and an S Corporation (S-Corp for short).

Each structure outlines its own set of distinctions and protections for operating your business.

Sole proprietorship

A sole proprietorship is probably the simplest structure to understand and use. A sole proprietorship is owned by one individual (the sole proprietor). You don't need to file any paperwork to "incorporate" your business as a sole proprietorship. If you begin operating a business and don't file as any business structure, you'll be automatically considered a sole proprietorship, according to the Small Business Administration (SBA) .

However, because a sole proprietorship doesn't create a separate entity for your business, you are liable for your business's debts.

"I rarely recommend a sole proprietorship because it's the default structure and you aren't taking advantage of the legal rights you can have with other business structures," says Shaliz Sadig Romano, the Co-Managing Partner at Romano Law , a law firm that represents entrepreneurs. "If something goes wrong, we want to make sure the assets of the company are what's on the line, not your house, car or other personal assets."

Limited liability corporation (LLC)

Next down the line is an LLC. As the name suggests, an LLC limits the liability you may take on from your business activities. With this type of legal structure, your business becomes an entity that's separate from you and will have its own bank account and taxpayer ID.

This creates a huge advantage for you as the business owner since you'll be able to protect your personal assets from liabilities, debt, lawsuits or bankruptcies incurred by your business.

According to Romano, filing for an LLC also sets your business up for growth – investors may feel more comfortable getting involved with an LLC, for example, and you also can hire employees under this structure.

"As the saying goes, an LLC is a lawyer's likely choice because it's great for small businesses and even some bigger ones that want to keep growing," Romano says.

S Corporation

An S Corp is another legal structure that provides limited liability protection to the business owner, much like an LLC. Both LLC's and S Corps are considered "pass-through" entities because the business itself doesn't pay taxes but rather the tax liability "passes through" to the owner's personal taxes. Both structures allow owners to protect the owner's personal assets.

One key difference between the two is that an LLC can have an unlimited number of owners (called members or shareholders) while an S Corp can have no more than 100 shareholders.

Which one is right for you?

Begin by thinking about where you see your business heading. This can provide some clues about which structure may be right for you. "What I tell clients before diving in is that it's important to have a vision of where you want to start and what you want to see in the next two to five years," Romano explains. "Are you looking to be a really small solopreneur like a consultant and don't intend on hiring or having office space? Or are you looking for something much bigger?"

For instance, if you're planning to run an online e-commerce business on a platform like Etsy all by yourself on the weekends, you may feel secure enough to run it as a sole proprietorship. But if you want to open up a storefront and can see yourself seeking assistance from investors one day, an LLC or S Corp may be a better fit for you.

Another consideration is the scope of your business practices. According to Romano, while an LLC is fine for doing business in the U.S., not all countries recognize an LLC as a legal entity or have different rules around it. So if you plan on doing business overseas, you'll want to read up carefully on that country's practices around legal structures so you can choose the one that's right for you.

The other thing to consider are requirements for filing an S Corp . To file an S Corp, you must be a U.S. citizen or legal resident and your business must operate domestically. You also can't have more than 100 shareholders — a person or organization that owns stock in the company — and those shareholders must have voting rights.

This is not the case for filing an LLC. You don't need to be a U.S. citizen or legal resident to file an LLC.

Understanding the requirements and do's and don'ts of each of the legal structures can give you a sense of which one best suits your needs. LegalZoom also offers tools to help you figure out which type of legal structure is best for your business.

These companies help you legally form your business

LegalZoom is a well-known service in this space. According to its website, LegalZoom helps users through three steps for getting their business started: Choosing a name and business structure, compliance information and paperwork filing for the business structure. Once you're off the ground, you can also use other LegalZoom features — like getting the right business licenses and getting operating agreements — to manage your business. Pricing can depend on the type of business you're forming, the formation state and any other business management features you might need.

For a more bare-bones service, Tailor Brands is a standout option. At the most basic tier, you can file an LLC application in your state and get it processed within 14 days. For this, you'll only pay your state's filing fee. Other tiers are more costly but offer services beyond just LLC application filing.

The highest pricing tier for Tailor Brands — the Elite package — comes with LLC formation, expedited LLC filing (processed within two days), legal compliance, a domain name and website plus a $50 Amazon gift card all for $249 per year plus your state's fee. You'll also get access to a host of additional business tools with this tier, like digital business cards, eight free logos and more.

Tailor Brands

From $0 to $249/year + state fee

Tailor Brands offers a basic LLC filing service for new business owners that costs $0 (you'll just pay your state's filing fee). It also offers a more comprehensive suite of business management services for a yearly subscription fee, including a website, domain, compliance services, business cards, logos and more.

Another service, Bizee , offers a ton of bang for your buck even at the most basic pricing tier ($0 + your state's filing fee). At this pricing level, you can take advantage of

unlimited business name searches
paperwork filing
access to a Registered Agent (to assist with state compliance for a year)
compliance alerts
banking offers
business tax consulting
unlimited phone and email support.

There are also several add-ons for an additional charge that you can pick and choose from.

From $0 to $299/year + state fee

Bizee offers a slew of features even at the most basic pricing tier. You'll be able to submit your business filing, receive compliance alerts and take advantage of business tax consultations, business banking offers and unlimited phone and email support. There are also several add ons you can pay extra for at any tier.

A business license is an official permit distributed by a state or local government allowing an organization to conduct business. Not all businesses may require a license but there are certain industries where you must have a license to operate.

For instance, if you're opening a business as an esthetician and offering hair and nail services to clients, you'll likely need an esthetics license to perform those services. If you're opening a bakery, you'll also need a license to prepare and sell food. And if you're starting a construction business, you'll want to get licensed as a contractor.

As you might imagine, there are many consequences for operating a business without a license — especially if your services result in harm.

Always be sure to check with your state or jurisdiction's business license requirements before you begin operating.

An employer identification number (EIN) allows the IRS to identify your business and track its tax activities.

While an EIN may not be necessary for every type of business, certain entities are required to have one, including corporations, partnerships and organizations with employees.

Business owners can visit the IRS website for additional information on who needs an EIN.

It's free to get an EIN. You'll just need to submit IRS Form SS-4 . If you choose to apply and submit your information online, your EIN will be issued immediately, according to the IRS website . If you apply by mail, it'll take approximately four weeks to process your application.

There's also the option to apply by fax, which will allow you to receive an EIN within four business days.

Business insurance can protect your business and its physical property, but it can also provide coverage in the event of a lawsuit, harm, theft and more.

For instance, if a natural disaster wrecks your bakery's storefront or the vehicles you use to make deliveries get broken into, you can file an insurance claim to cover your losses.

Insurance can also help pay for some expenses if your business is facing a lawsuit. Or, if an employee becomes sick or injured while doing their job, an insurance policy that includes worker's compensation will allow your business to provide the medical care they need.

The type of insurance and the amount of coverage you need will depend on the business you're running and how much risk is involved with that business.

CNBC Select ranked The Hartford Business Insurance as one of the best providers for small business insurance since this company services many industries at relatively affordable prices. Nationwide also excels at offering a wide variety of plans to business owners.

The Hartford Business Insurance

The best way to estimate your costs is to request a quote

Policy highlights

The Hartford has been offering insurance policies for over 200 years and insures over 1 million small businesses. It offers coverage for a variety of industries and is highly rated for customer satisfaction.

App available

Quotes available online
Highly rated for customer satisfaction
App doesn't support business policy management

Nationwide Business Insurance

Nationwide offers insurance policies for small and large businesses alike in a variety of industries. A number of insurance types also help business owners to tailor their coverage.

Keeping your business finances separate from your personal finances is ideal since it allows you to stay organized and keep better track of your transactions come tax time. Plus, some lenders and grant funders require that you have a business bank account so that you can receive your funds.

It's fairly simple to open a business bank account, and the process is very similar to opening a personal bank account.

CNBC Select ranked the Bluevine Business Checking Account as one of the best accounts for small businesses since it doesn't charge a monthly maintenance fee, has no minimum deposit required to open the account and no minimum balance requirements. On top of that, account holders earn interest on their balances and get access to a convenient mobile app.

Bluevine Business Checking

Special offer, monthly maintenance fee.

Standard $0; Bluevine Plus $30/month (with options to waive) ; Premier $95/month (with options to waive)

Minimum deposit to open

Standard: 2.0% APY on balances up to and including $250,000 if you meet a monthly activity goal* Bluevine Plus: 3.0% APY for Plus customers Premier: 4.25% APY without minimum qualifications

Free ATM network

No fees at over 38,000 ATM locations nationwide

ATM fee reimbursement

Small business perks.

Two free checkbooks

Mobile check deposit

Terms apply. Bluevine accounts are FDIC insured up to $3 million per depositor through Coastal Community Bank, Member FDIC

No monthly fees, monthly or daily balance minimums, ACH payment fees, incoming wire fees or overdraft fees
Ability to instantly lock and unlock your Bluevine Business Debit Mastercard® for added security
Connect to business tools like PayPal, Stripe and Expensify
Unlimited transactions
Online only (not great if you prefer in-person banking)
No ATM refunds for out-of-network transactions

*The requirements to earn interest are either:

Debit Card Spend: Spend $500 per month with Bluevine Business Debit Mastercard® issued by Coastal Community Bank pursuant to a license from Mastercard inc, which can be used everywhere Mastercard® is accepted.
Incoming Payments: Receive $2,500 per month in customer payments into Bluevine Business Checking account via ACH, wire transfer, mobile check deposit, or directly from merchant payment processing provider

As for savings accounts, one of the strongest options on the market is the Axos Bank Business Premium Savings account. It doesn't charge a monthly maintenance fee, doesn't have a minimum deposit required to open the account and there are no overdraft fees. It offers a very attractive APY for account balances and you can deposit checks into the account through the mobile app.

Axos Bank Business Premium Savings

Minimum deposit.

Up to 6 free withdrawals or transfers per statement cycle

Yes, if the account holder has an Axos business checking account

Above-average APY
Deposit checks remotely using your mobile device
No physical branches for in-person banking

Set up your accounting system

As a business owner, you'll need to prepare for tax events and manage your cash flow to help you reach your business goals year-round. Working with a professional can help you understand the numbers underpinning your business and clarify what decisions you need to make for long-term success.

"Staying organized is key," says Sheneya Wilson, Founder and CEO of Fola Financial. "Work with a professional who's not just interested in giving you services at the end of the year but rather someone who can work with you throughout the year so you can be prepared."

Of course, good professionals can cost a lot of money. If you want to take a more DIY approach to your business's accounting, consider paying a small monthly fee for software like Quickbooks or Xero . These types of programs can often help you track business expenses, pay bills, and accept payments. They can also integrate with payroll services to make paying your employees simple.

Quickbooks® Payroll

Starts at $22.50/month + $6/month per employee (with discount; regular price starts at $75/month + $6/month per employee)

Benefits Administration

401(k) plans, health benefits, workers' compensation administration

Starts at $3.75 per month for three months (with discount; regular pricing starts at $15 per month)

Yes, through a partnership with Gusto

Yes, in partnership with Gusto; When you sign up for Xero you get 30 days of Gusto for free and after that, you must pay Gusto's standard charges

Once you've checked off all the other items on your to-do list, the last thing left is to actually launch your business and begin operating.

Before you launch, it can be helpful to set up social media profiles for yourself so you can spread the word before your business is even running. You may be able to get your early clients and customers through friends and family.

This is also where you can refer back to your business plan for steps on how you'll market the business and increase sales.

Keep in mind that running a business means you're constantly learning and adapting. There will always be ups and downs but being able to pivot quickly and learn from what's working (and what's not working) can help you recover quickly and build a sustainable business.

Money matters — so make the most of it. Get expert tips, strategies, news and everything else you need to maximize your money, right to your inbox. Sign up here .

Meet our experts

At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed:

Sheneya Wilson, the Founder and CEO of Fola Financial
Shaliz Sadig Romano, the Co-Managing Partner at Romano Law
Dr. Jenny Woo, the Founder and CEO of Mind Brain Emotion
Abby Mercado, the Co-Founder and CEO of Rescripted and a former Venture Capital Investor at the Altira Group

Why trust CNBC Select?

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of small business products. To research the best insurance companies, we compiled over 100 data points on more than a dozen insurance companies. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best commercial auto insurance companies.

Catch up on CNBC Select's in-depth coverage of credit cards , banking and money , and follow us on TikTok , Facebook , Instagram and Twitter to stay up to date.

For rates and fees of the Blue Business Plus Credit Card from from American Express, click here

Chase Ink Business Cash vs. Chase Ink Business Unlimited Jason Stauffer
Citi Diamond Preferred Card review: Intro-APR offers a near-perfect balance transfer Jason Stauffer
5 Best installment loans for bad credit Jasmin Suknanan

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7 Business Plan Examples to Inspire Your Own (2024)

Need support creating your business plan? Check out these business plan examples for inspiration.

Any aspiring entrepreneur researching how to start a business will likely be advised to write a business plan. But few resources provide business plan examples to really guide you through writing one of your own.

Here are some real-world and illustrative business plan examples to help you craft your business plan .

7 business plan examples: section by section

The business plan examples in this article follow this template:

Executive summary. An introductory overview of your business.
Company description. A more in-depth and detailed description of your business and why it exists.
Market analysis. Research-based information about the industry and your target market.
Products and services. What you plan to offer in exchange for money.
Marketing plan. The promotional strategy to introduce your business to the world and drive sales.
Logistics and operations plan. Everything that happens in the background to make your business function properly.
Financial plan. A breakdown of your numbers to show what you need to get started as well as to prove viability of profitability.
Executive summary

Your executive summary is a page that gives a high-level overview of the rest of your business plan. It’s easiest to save this section for last.

In this free business plan template , the executive summary is four paragraphs and takes a little over half a page:

A four-paragraph long executive summary for a business.

Company description

You might repurpose your company description elsewhere, like on your About page, social media profile pages, or other properties that require a boilerplate description of your small business.

Soap brand ORRIS has a blurb on its About page that could easily be repurposed for the company description section of its business plan.

You can also go more in-depth with your company overview and include the following sections, like in the example for Paw Print Post:

Business structure. This section outlines how you registered your business —as an LLC , sole proprietorship, corporation, or other business type . “Paw Print Post will operate as a sole proprietorship run by the owner, Jane Matthews.”
Nature of the business. “Paw Print Post sells unique, one-of-a-kind digitally printed cards that are customized with a pet’s unique paw prints.”
Industry. “Paw Print Post operates primarily in the pet industry and sells goods that could also be categorized as part of the greeting card industry.”
Background information. “Jane Matthews, the founder of Paw Print Post, has a long history in the pet industry and working with animals, and was recently trained as a graphic designer. She’s combining those two loves to capture a niche in the market: unique greeting cards customized with a pet’s paw prints, without needing to resort to the traditional (and messy) options of casting your pet’s prints in plaster or using pet-safe ink to have them stamp their ‘signature.’”
Business objectives. “Jane will have Paw Print Post ready to launch at the Big Important Pet Expo in Toronto to get the word out among industry players and consumers alike. After two years in business, Jane aims to drive $150,000 in annual revenue from the sale of Paw Print Post’s signature greeting cards and have expanded into two new product categories.”
Team. “Jane Matthews is the sole full-time employee of Paw Print Post but hires contractors as needed to support her workflow and fill gaps in her skill set. Notably, Paw Print Post has a standing contract for five hours a week of virtual assistant support with Virtual Assistants Pro.”

Your mission statement may also make an appearance here. Passionfruit shares its mission statement on its company website, and it would also work well in its example business plan.

Market analysis

The market analysis consists of research about supply and demand, your target demographics, industry trends, and the competitive landscape. You might run a SWOT analysis and include that in your business plan.

Here’s an example SWOT analysis for an online tailored-shirt business:

A SWOT analysis table showing strengths, weaknesses, opportunities and threats

You’ll also want to do a competitive analysis as part of the market research component of your business plan. This will tell you who you’re up against and give you ideas on how to differentiate your brand. A broad competitive analysis might include:

Target customers
Unique value add or what sets their products apart
Sales pitch
Price points for products
Shipping policy
Products and services

This section of your business plan describes your offerings—which products and services do you sell to your customers? Here’s an example for Paw Print Post:

An example products and services section from a business plan

Marketing plan

It’s always a good idea to develop a marketing plan before you launch your business. Your marketing plan shows how you’ll get the word out about your business, and it’s an essential component of your business plan as well.

The Paw Print Post focuses on four Ps: price, product, promotion, and place. However, you can take a different approach with your marketing plan. Maybe you can pull from your existing marketing strategy , or maybe you break it down by the different marketing channels. Whatever approach you take, your marketing plan should describe how you intend to promote your business and offerings to potential customers.

Logistics and operations plan

The Paw Print Post example considered suppliers, production, facilities, equipment, shipping and fulfillment, and inventory.

Financial plan

The financial plan provides a breakdown of sales, revenue, profit, expenses, and other relevant financial metrics related to funding and profiting from your business.

Ecommerce brand Nature’s Candy’s financial plan breaks down predicted revenue, expenses, and net profit in graphs.

A sample bar chart showing business expenses by month

It then dives deeper into the financials to include:

Funding needs
Projected profit-and-loss statement
Projected balance sheet
Projected cash-flow statement

You can use this financial plan spreadsheet to build your own financial statements, including income statement, balance sheet, and cash-flow statement.

Types of business plans, and what to include for each

A one-page business plan is meant to be high level and easy to understand at a glance. You’ll want to include all of the sections, but make sure they’re truncated and summarized:

Executive summary: truncated
Market analysis: summarized
Products and services: summarized
Marketing plan: summarized
Logistics and operations plan: summarized
Financials: summarized

A startup business plan is for a new business. Typically, these plans are developed and shared to secure outside funding . As such, there’s a bigger focus on the financials, as well as on other sections that determine viability of your business idea—market research, for example.

Market analysis: in-depth
Financials: in-depth

Your internal business plan is meant to keep your team on the same page and aligned toward the same goal.

A strategic, or growth, business plan is a bigger picture, more-long-term look at your business. As such, the forecasts tend to look further into the future, and growth and revenue goals may be higher. Essentially, you want to use all the sections you would in a normal business plan and build upon each.

Market analysis: comprehensive outlook
Products and services: for launch and expansion
Marketing plan: comprehensive outlook
Logistics and operations plan: comprehensive outlook
Financials: comprehensive outlook

Feasibility

Your feasibility business plan is sort of a pre-business plan—many refer to it as simply a feasibility study. This plan essentially lays the groundwork and validates that it’s worth the effort to make a full business plan for your idea. As such, it’s mostly centered around research.

Set yourself up for success as a business owner

Building a good business plan serves as a roadmap you can use for your ecommerce business at launch and as you reach each of your business goals. Business plans create accountability for entrepreneurs and synergy among teams, regardless of your business model .

Kickstart your ecommerce business and set yourself up for success with an intentional business planning process—and with the sample business plans above to guide your own path.

Business plan examples FAQ

How do i write a simple business plan, what is the best format to write a business plan, what are the 4 key elements of a business plan.

Executive summary: A concise overview of the company's mission, goals, target audience, and financial objectives.
Business description: A description of the company's purpose, operations, products and services, target markets, and competitive landscape.
Market analysis: An analysis of the industry, market trends, potential customers, and competitors.
Financial plan: A detailed description of the company's financial forecasts and strategies.

What are the 3 main points of a business plan?

Concept: Your concept should explain the purpose of your business and provide an overall summary of what you intend to accomplish.
Contents: Your content should include details about the products and services you provide, your target market, and your competition.
Cashflow: Your cash flow section should include information about your expected cash inflows and outflows, such as capital investments, operating costs, and revenue projections.

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Proposed Rule

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HUBZone Program Updates and Clarifications, and Clarifications to Other Small Business Programs

A Proposed Rule by the Small Business Administration on 08/23/2024

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Document Details Published Content - Document Details Agency Small Business Administration Agency/Docket Number Docket ID SBA-2024-0007 CFR 13 CFR 121 13 CFR 124 13 CFR 125 13 CFR 126 13 CFR 127 13 CFR 128 13 CFR 134 Document Citation 89 FR 68274 Document Number 2024-18325 Document Type Proposed Rule Pages 68274-68319 (46 pages) Publication Date 08/23/2024 RIN 3245-AH68 Published Content - Document Details
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Document Dates Published Content - Document Dates Comments Close 10/07/2024 Dates Text Comments must be received on or before October 7, 2024. Published Content - Document Dates

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FOR FURTHER INFORMATION CONTACT:

Supplementary information:, i. background, ii. section-by-section analysis, sections 121.103(a)(3), 124.106(h), 127.202(h) and 128.203(j)(6), section 121.103(h), section 121.104, section 121.404, section 121.1001, section 121.1010, section 124.3, sections 124.105(b), 127.202(d) and 128.202(c), section 124.105, sections 124.106(e), 127.202(g) and 128.203(h), section 124.107, section 124.108, sections 124.108(e), 126.200(h), 127.200(h), and 128.201(b), sections 124.204(d), 126.306(d), 127.304(d), and 128.302, sections 124.303(c), 126.503(c), 127.405(f), and 128.310(g), section 124.207, section 124.503, sections 124.504(a), section 124.509, section 124.514(a)(1), section 124.518, section 124.602, section 125.2, section 125.3, section 125.6(d), section 125.8, section 125.9, sections 125.12, 126.619, 127.504(h), and 128.401(e), sections 125.13 and 124.4, section 126.103, section 126.104, section 126.105, sections 126.200(b)(1), 127.200(e), and 128.204(a), section 126.200, section 126.201, section 126.204, sections 124.203, 126.302, 126.303, 127.301, 127.302, 128.301, section 126.304(e), section 126.306(h), sections 126.309, 126.803, 127.305, and 128.305, section 126.401, section 126.403, section 126.404, sections 126.500 and 126.601, section 126.501, section 126.503, section 126.504, section 126.600, section 126.602, section 126.605, section 126.612, section 126.613, section 126.615, section 126.616, section 126.619, section 126.701, section 126.800, section 126.801, section 126.803, section 126.900, sections 127.200 and 128.200, section 127.400, section 134.1104, compliance with executive orders 12866, 12988, 13132, 13563, the congressional review act ( 5 u.s.c. 801-808 ), the paperwork reduction act ( 44 u.s.c. ch. 35 ), and the regulatory flexibility act ( 5 u.s.c. 601-612 ), executive orders 12866, 13563 and 14904, regulatory impact analysis, 1. is there a need for the regulatory action, 2. what are the incremental benefits and costs of this regulatory action, revisions in compliance measures, 3. what are the alternatives to this rule, executive order 13132, paperwork reduction act, 44 u.s.c. ch. 35, regulatory flexibility act, 5 u.s.c. 601-612, list of subjects, 13 cfr part 121, 13 cfr part 124, 13 cfr part 125, 13 cfr part 126, 13 cfr part 127, 13 cfr part 128, 13 cfr part 134, part 121—small business size regulations, part 124—8(a) business development/small disadvantaged business status determinations, part 125—government contracting programs, part 126—hubzone program, subpart g—limitations on subcontracting requirements, part 127—women-owned small business federal contract program, part 128—veteran small business certification program, part 134—rules of procedure governing cases before the office of hearings and appeals.

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Small Business Administration

13 CFR Parts 121, 124, 125, 126, 127, 128, 134
[Docket ID SBA-2024-0007]
RIN 3245-AH68

U.S. Small Business Administration.

Proposed rule.

The U.S. Small Business Administration (SBA or Agency) proposes to amend its regulations governing the Historically Underutilized Business Zone (HUBZone) Program to clarify certain policies. In 2019, SBA published a comprehensive revision to the HUBZone Program regulations, which implemented changes intended to make the HUBZone Program more efficient and effective. This proposed rule is intended to clarify and improve policies surrounding some of those changes. In particular, the rule proposes to require any certified HUBZone small business to be eligible as of the date of offer for any HUBZone contract. SBA also proposes to make several changes to SBA's size and 8(a) Business Development (BD) regulations, as well as some technical changes to the Women-Owned Small Business (WOSB) and Veteran Small Business Certification (VetCert) programs. Of note, the proposed rule would delete the program specific recertification requirements contained separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert and move them to a new section that would cover all size and status recertification requirements. This should ensure that the size and status requirements will be uniformly applied.

Comments must be received on or before October 7, 2024.

You may submit comments, identified by Docket No. SBA-2024-0007 or RIN 3245-AH68, by any of the following methods:

Federal eRulemaking Portal: http://www.regulations.gov and follow the instructions for submitting comments.
Mail (for paper submissions): Laura Maas, HUBZone Program, 409 Third Street SW, Washington, DC 20416.

Instructions: All submissions received must include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. All comments received will be posted on http://www.regulations.gov . If you wish to submit confidential business information (CBI) as defined in the User Notice at http://www.regulations.gov , please submit the comments to Laura Maas and highlight the information that you consider to be CBI and explain why you believe this information should be held confidential. SBA will make a final determination as to whether the comments will be published or not.

Laura Maas, Deputy Director, Office of HUBZone, (202) 205-7341, [email protected] .

On November 26, 2019, SBA published the first comprehensive revision of the HUBZone Program regulations since the program's implementation more than 20 years ago. 84 FR 65222 . The revisions were intended to clarify current HUBZone Program policies and procedures and implement changes to make the HUBZone Program more efficient and effective. This proposed rule would make additional clarifications to the program regulations to reflect SBA policies established in response to feedback received in the time since the publication of the comprehensive revision.

SBA also made a number of revisions to the HUBZone regulations as part of its implementation of section 1701 of the National Defense Authorization Act for Fiscal Year 2018 (NDAA 2018), Public Law 115-91 , Dec. 12, 2017. Included within that rulemaking were revisions freezing the HUBZone map until the results of the 2020 census were released; authorizing “legacy HUBZone employees”; requiring annual recertification; implementing one-year certification and requiring HUBZone firms to be eligible on each anniversary of their HUBZone certification date; and requiring HUBZone firms to be HUBZone-certified at the time of offer for any HUBZone contract, with eligibility relating back to their certification anniversary date and removing the requirement for HUBZone small businesses to be eligible at the time of award of a HUBZone contract.

In the time since SBA published the comprehensive revision, the Office of the HUBZone Program has received questions and information that prompted refinement and clarification of policies contained in that revision, which SBA published in “Frequently Asked Questions” in February 2020 and in subsequent updates. This proposed rule would incorporate some of those clarifications and make other refinements in the HUBZone regulations, including requiring HUBZone firms to be eligible on the date of offer for a HUBZone contract and relieving the burden of annual recertification by moving to a triennial recertification requirement. In addition, this proposed rule would clarify policies related to “Governor-designated covered areas,” which were authorized by the NDAA 2018 and implemented through a direct final rule published by SBA on November 15, 2019. 84 FR 62447 .

Further, in response to concerns related to potential fraud and abuse in the program, SBA is proposing to amend the definition of the term “employee” by raising the minimum number of work hours necessary for an individual to count as an employee for HUBZone program purposes.

The proposed rule would also make several changes to SBA's size and 8(a) business development (BD) regulations, as well as some technical changes to the women-owned small business (WOSB) and the Veteran Small Business Certification (VetCert) programs. Of note, the proposed rule would delete the program specific recertification requirements contained separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert and move them to a new section that would cover all size and status recertification requirements. Currently, there is some language contained in the program specific recertification rules that is not identical in each of the programs. This has caused some confusion as to whether SBA intended the rules to be different in certain cases. That was not SBA's intent. Moving all size and recertification to new § 125.12 should alleviate any confusion between the different programs and ensure that the size and status requirements will be uniformly applied.

SBA proposes to amend its rules on affiliation in the size regulations and control in the 8(a) BD, WOSB and VetCert program regulations regarding negative control. Specifically, this proposed rule would make the negative-control rules consistent across SBA's various programs. The negative control provision states that a concern may be deemed controlled by, and therefore affiliated with, a minority shareholder that has the ability to prevent a quorum or otherwise block action by the board of directors or shareholders. The rule does not include any specific exceptions, though some have ( print page 68275) developed through caselaw at SBA's Office of Hearings and Appeals (OHA). See, e.g., Southern Contracting Solutions III, LLC, SBA No. SIZ-5956 (Aug. 30, 2018).

This proposed rule would first amend § 121.103(a)(3) by adding language currently contained in the VetCert rules that developed from OHA case law to clarify that there are certain “extraordinary circumstances” under which a minority shareholder may have some decision-making authority without a finding of negative control. Specifically, SBA will not find that a lack of control exists where a qualifying individual or business does not have the unilateral power and authority to make decisions regarding: (1) adding a new equity stakeholder; (2) dissolution of the company; (3) sale of the company or all assets of the company; (4) the merger of the company; (5) the company declaring bankruptcy; and (g) amendment of the company's governance documents to remove the shareholder's authority to block any of (1) through (5). These exceptions to negative control are being implemented to promote consistency with other SBA contracting programs ( see § 128.203(j)).

This rule proposes to add the same language to a new § 124.106(h) for the 8(a) BD program and to § 127.202(h) for the WOSB program. Finally, since the current VetCert regulations have only the first five exceptions for control and this rule would add six to the size, 8(a) BD and WOSB regulations, the proposed rule would add that same sixth exception to the VetCert regulations also. That addition would be a new § 128.203(j)(6). Through this proposed rule, SBA would add explicit exceptions to the negative-control provision for all programs for which control is an eligibility element. This would permit all small businesses to seek equity funding without becoming affiliated with the investors solely because of a broad interpretation of the negative-control rule. SBA specifically requests comments as to whether the six identified exceptions are sufficient or whether one or more additional exceptions should also be included in the regulations.

Section 121.103(h)(3) sets forth SBA's “ostensible subcontractor” rule, which may find a prime contractor ineligible for the award of any small business contract or order where a subcontractor that is not similarly situated (as that term is defined in § 125.1) performs primary and vital requirements of a contract, order, or agreement, or where the prime contractor is unusually reliant on such a subcontractor. The current regulatory text provides that a contractor and its ostensible subcontractor are treated as joint venturers for size determination purposes, and as long as each concern is small under the size standard corresponding to the relevant North American Industry Classification System (NAICS) code or the prime contractor is small and the subcontractor is its SBA-approved mentor, the arrangement will qualify as a small business. That language has caused some confusion. In the context of a subcontractor that is an SBA-approved mentor of the prime contractor, in treating the relationship “as a joint venture”, SBA intended to allow the relationship to qualify as a small business only if all the joint venture requirements were met. That would mean that the protégé and mentor have an underlying joint venture agreement that meets the requirements of § 125.8(b), the protégé will direct and have ultimate responsibility for the contract, and the performance of work requirements set forth in § 125.8(c) will be met. In a prime-subcontractor relationship, those requirements are not present and SBA would aggregate the revenues/employees of such “joint ventures” in determining size. Unfortunately, without clearly specifying SBA's intent, the current regulation could be read to allow mentors to be found to be ostensible subcontractors while not meeting the normal joint venture requirements. That was not SBA's intent. This proposed rule would simplify § 121.103(h) by eliminating the reference to a joint venture and instead specify that an offeror is ineligible as a small business concern, an 8(a) small business concern, a certified HUBZone small business concern, a WOSB/EDWOSB, or a VO/SDVO small business concern where SBA determines there to be an ostensible subcontractor relationship.

This proposed rule would also make a corresponding change to § 121.702(c)(7) for the SBIR program. That change would provide that a concern with an other than small ostensible subcontractor cannot be considered a small business concern for SBIR and STTR awards.

Section 121.104 defines the term annual receipts to mean all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. It goes on to state that generally, receipts are considered “total income” plus “cost of goods sold” as these terms are defined and reported on Internal Revenue Service (IRS) tax return forms. The section also provides that Federal income tax must be used to determine the size status of a concern. There has been some confusion as to whether SBA is restricted in all circumstances to examining only a concern's tax returns or whether SBA may look at other information if it appears or there is other information suggesting that the tax returns do not adequately capture a concern's total revenue. The proposed rule clarifies that SBA will always consider a concern's tax returns, but may also consider other relevant information in appropriate circumstances in determining whether the concern qualifies as small.

SBA proposes to simplify and reorganize § 121.404, which addresses the date used to determine size for size certifications and determinations. The proposed changes would not alter the substance of SBA's rules regarding the date to determine size, but rather seek to clarify the current rules and make them easier to understand and apply. In addition to these clarifications, SBA is proposing substantive changes to the rules regarding size recertification and proposes to remove paragraph (g) on size recertification and relocate that paragraph to new section 125.12, which addresses size and small business program status recertification.

Generally, a concern (including its affiliates) must qualify as small under the NAICS code assigned to a contract as of the date the concern submits a self-certification that it is small to the procuring activity as part of its initial offer or response which includes price. Once awarded a contract as a small business, a concern is generally considered to be a small business throughout the life of that contract. For orders and agreements issued under multiple award contracts, the date that size is determined depends on whether the underlying multiple award contract was awarded on an unrestricted basis or whether it was set aside or reserved for small business ( i.e., small business set-aside, 8(a) small business, service-disabled veteran-owned small business, HUBZone small business, or women-owned/economically disadvantaged women-owned small business).

Where an order or agreement is to be set aside for small business under an unrestricted multiple award contract, size is determined as of the date of initial offer (or other formal response to a solicitation), including price, for each ( print page 68276) order or agreement placed against the multiple award contract. In that scenario, the order or agreement is the first time that size status is important to eligibility. That is the first time that only some contract holders will be eligible to compete for the order or agreement while others will be excluded from competition because of their size status. SBA repeats here its view that SBA never intended to allow a firm's self-certification for the underlying unrestricted multiple award contract to control whether a firm is small at the time an order or agreement is set-aside for small business years after the multiple award contract was awarded.

Where the underlying multiple award contract was set aside or reserved for small business, size status will generally flow down from the underlying contract to the order or agreement, unless recertification is requested by a contracting officer with respect to an agreement or order. As such, size status for an order or agreement under a multiple award contract that itself was set aside or reserved for small business is determined as of the date of initial offer, including price, for the multiple award contract, unless size recertification is requested by the contracting officer in connection with a specific order or agreement.

This rule proposes to also clarify that where a contracting officer requests size recertification with respect to a specific order or agreement, size is determined as of the date of initial offer (or other formal response to a solicitation), including price, for that specific order or agreement only. The requirement to recertify applies only to the order or agreement for which a contracting officer requested recertification. The recertification does not apply to the underlying contract. Where an initially-small contract holder has naturally grown to be other than small and could not recertify as small for a specific order or agreement for which a contracting officer requested recertification, it may continue to qualify as small for other orders or agreements where a contracting officer does not request recertification.

If size recertification is triggered by a merger, sale, or acquisition; or because it is a long-term contract in the fifth year of performance, size will be determined as of the date of the merger, sale, or acquisition occurred, or the date of the size recertification in the case of a recertification in the fifth year of a long-term contract. The impact of a disqualifying recertification, the events that require recertification, and the timing of recertification, are discussed in detail in 125.12, which is a new proposed section of SBA's regulations.

To summarize and clarify, there are three, narrow exceptions to the general rule that the date on which size is determined for an order or agreement against a multiple award contract is dependent on whether the underlying multiple award contract was set aside for small business or unrestricted. The first exception is for set-aside orders or agreements to be placed against GSA's Federal Supply Schedule (FSS) Multiple Award Schedule (MAS) contracts, which is an unrestricted vehicle. Unlike set-side and reserved orders issued under unrestricted multiple award contracts where size status is determined at the date of the offer for the order, for FSS orders size status is determined as of the date of offer for the underlying FSS contract. This exception does not apply when any trigger for size recertification occurs under § 125.12, including when a contracting officer requests a size recertification with the offer for a specific order or agreement that is set-aside for small businesses against the FSS MAS.

SBA provides this clarification in response to a recent decision of the Government Accountability Office (GAO) in Washington Business Dynamics, LLC, B-421953, B-421953.2 (Dec. 18, 2023), which cites to several OHA decisions. SBA believes both GAO and OHA misinterpret SBA's regulations. In its decision, GAO extended the FSS exception to apply to size recertifications for orders placed under other multiple award contracts. When a contracting officer requests recertification of size with respect to an order or agreement, the FSS exception does not apply. If there is a disqualifying size recertification in response to any event in 125.12, including a merger, sale, or acquisition, the concern must notify the contracting officer for the underlying multiple award contract and the contracting officer for all existing orders, and update its SAM.gov profile to reflect its current size status. The concern is no longer eligible for set-aside orders or agreements against the FSS MAS. In those instances, size is determined as of the date that the triggering event occurred or offer for the particular order or agreement, depending on the cause for recertification.

The second exception is for 8(a) sole source awards issued against multiple award contracts, regardless of whether the underlying multiple award contract is unrestricted, set-aside (even if the underlying multiple award contract itself was set-aside or reserved as an 8(a) award), or under the GSA's FSS MAS contracts. SBA has always required an 8(a) Participant to qualify as eligible (to still be an active Participant in the 8(a) program, qualify as small, and meet all other eligibility criteria) at the time of any 8(a) sole source award. In terms of size for a specific 8(a) sole source order or agreement under a multiple award contract, including GSA's FSS MAS contracts, the concern must qualify as small for the size standard corresponding to the NAICS code assigned to the order or agreement on the date of initial offer for and award of the order or agreement.

The third exception applies when size recertification is triggered pursuant to any scenario outlined in new § 125.12, including when a contracting officer requests recertification of size for a particular order or agreement against a multiple award contract. To be clear, when a recertification of size is triggered, the date to determine size is outlined in new section 125.12, and is typically the date of the triggering event, but may be the date of initial offer for a particular order or agreement if a contracting officer requested recertification with the offer. Size recertification is an essential tool that ensures small business awards continue to be entered into with entities that are small at the time of offer for a particular award. As such, when the requirement for recertification is triggered, the date to determine size shifts to a date that coincides with either the triggering event or the date of initial offer for a particular award (except for sole source 8(a) awards as noted above).

Section 121.1001 identifies who may initiate a size protest or request a formal size determination in different instances. Paragraph 121.1001(b)(2)(ii) identifies who may request a formal size determination where SBA cannot verify that an 8(a) Participant is small for a specific sole source or competitive 8(a) contract. There have been a few cases where SBA initially determined that a Participant qualified as small for a sole source 8(a) contract, but later received information that questioned that determination. Under a strict reading of § 121.1001(b)(2)(ii), SBA could not then request a formal size determination because the wording of § 121.1001(b)(2)(ii) authorized such a request only where SBA “cannot verify the eligibility of the apparent successful offeror because SBA finds the concern to be other than small.” Since verification, albeit initial verification only, had already occurred, some have questioned whether SBA could request a formal size determination at all in that ( print page 68277) context. SBA notes that it was never SBA's intent to prohibit further analysis of an 8(a) Participant's size eligibility when new information becomes available to SBA that questions the firm's eligibility at any point prior to award. SBA seeks to ensure that only firms that qualify as small receive 8(a) contracts. This proposed rule would add a new § 121.1001(b)(2)(iii) to specifically authorize SBA to request a formal size determination where SBA initially verified the eligibility of an 8(a) Participant for the award of an 8(a) contract but then subsequently receives specific information that the Participant may be other than small and consequently ineligible.

This rule also proposes to add a new § 121.1001(b)(12) to specifically authorize requests for formal size determinations relating to size recertifications required by § 125.12. Section 125.12 requires a concern to recertify its size when there is a merger, acquisition, or sale and prior to the sixth year and every option thereafter of a long-term contract. Although SBA and the relevant contracting officer may file a size protest before or after the award of a contract ( see § 121.1004(b)), the regulations do not currently specifically authorize a protest or a request for a formal size determination in connection with a size recertification. More importantly, there currently is no mechanism to allow a protest or request for a formal size determination from another interested small business concern who believes that a size recertification is incorrect. For example, on a multiple award contract, if after a merger or acquisition a concern re-certifies itself to be small, another contract holder on that multiple award contract could not currently challenge that recertification. Because the proposed rule would render a concern ineligible for orders set aside for small business or set aside for a specific type of small business under a multiple award contract where the concern submits a disqualifying recertification ( see § 125.12 below), SBA believes that other contract holders should have the ability to question a size recertification. The proposed rule would specifically authorize the contracting officer, the relevant SBA program manager, or the Associate General Counsel for Procurement Law to request a formal size determination. The relevant SBA program manager is that individual overseeing the program relating to the contract at issue. For an 8(a) contract, that would be the Associate Administrator for Business Development; for a HUBZone contract, that would be the Director of HUBZones; and for a small business set-aside, WOSB/EDWOSB or SDVOSB contract, that would be the Director of Government Contracting. The proposed rule would also specify that in connection with a size recertification relating to a multiple award contract, any contract holder on that multiple award contract could request a formal size determination in addition to the contracting officer, the relevant SBA program manager, or the Associate General Counsel for Procurement Law. As with a size protest, a request for a formal size determination questioning the size of a concern after its size recertification must be sufficiently specific to provide reasonable notice as to the grounds upon which the recertifying concern's size is questioned.

SBA is also considering allowing a size protest in connection with the award of an order issued under a multi-agency multiple award contract where the protest relates to the ostensible subcontractor rule. Whether a large business subcontractor will perform primary and vital requirements or whether a small business prime contractor will be unduly reliant on a large business subcontractor will not be an issue at the time of award of an underlying small business multiple award contract. It is at the order level where undue reliance may become an issue. SBA requests comments regarding whether SBA should implement a regulatory provision authorizing such a protest.

Section 121.1010 explains how a concern can become recertified as a small business after receiving an adverse size determination. This proposed rule would make slight wording changes to § 121.1010(b) to make clear that size recertification is not required and the prohibition against future self-certification does not apply if the adverse SBA size determination is based solely on a finding of affiliation limited to a particular Government procurement or property sale, such as an ostensible subcontracting relationship or non-compliance with the nonmanufacturer rule.

Section 124.3 sets forth the definitions that are important in the 8(a) BD program. Included within this section is the definition of the term Community Development Corporation or CDC. In 1981, Congress enacted the Omnibus Reconciliation Act. Included within Title VI of this Act was § 626(a)(2), codified at 42 U.S.C. 9815(a)(2) , which required SBA to “promulgate regulations to ensure the availability to community development corporations of such programs as shall further the purposes of this subchapter, including programs under section 8(a) of the Small Business Act.” Pursuant to 42 U.S.C. 9802 , a CDC is defined as a non-profit organization responsible to the residents of the area it serves which is receiving financial assistance under 42 U.S.C. 9805 , et seq. Under 42 U.S.C. 9806 the Secretary of Health and Human Services (HHS) has the authority to provide financial assistance in the form of grants to nonprofit and for-profit community development corporations. The program authorized by 42 U.S.C. 9805 , et seq. is the Department of Health and Human Services (HHS) Urban and Rural Special Impact Program. In 1998, as part of Community Opportunities, Accountability, and Training and Educational Act of 1998, Public Law 105-285 , 202(b)(1), 112 Stat. 2702, 2755 (1998), Congress moved HHS' funding authority for the Urban and Rural Special Impact Program from 42 U.S.C. 9803 to 42 U.S.C. 9921 . Thus, after that date CDCs could not receive funding under 42 U.S.C. 9805 , et seq. CDCs that have been in existence for a long time may still be able to demonstrate that they have received funding under 42 U.S.C. 9805 , et seq. However, those forming after 1998 could not do so. In order for such a CDC seeking to participate in the 8(a) BD program after that date, SBA has required the CDC to obtain a letter from HHS confirming that the CDC has received funding through the successor program to that authorized by 42 U.S.C. 9805 , et seq. However, SBA's regulations have not been changed to acknowledge eligibility for a CDC-owned firm through that process. The proposed rule would recognize that process. The proposed rule would also make the same change to the definition of the term Community Development Corporation or CDC contained in § 126.103 for the HUBZone program.

Sections 124.105(b) (for the 8(a) BD program), 127.202(d) (for the WOSB program), and 128.202(c) (for VetCert program) set forth ownership requirements pertaining to partnerships. The language of the three sections is not consistent. SBA seeks to harmonize the provisions so that a firm simultaneously applying to be certified in more than one program must meet the same requirements. SBA does not want possible contradictory determinations based on the same facts. In other words, SBA believes that it would be ( print page 68278) inappropriate to find that a qualifying individual controls a partnership firm for purposes of one certification program but not to control the same partnership firm for purposes of another certification program. This rule would revise the ownership requirements for partnership to be identical for the 8(a) BD, WOSB and VetCert programs.

Section 124.105 sets forth the ownership requirements that an applicant to or Participant in the 8(a) BD program must meet in order to be and remain eligible for the program. Paragraph 124.105(h) provides certain ownership restrictions that are applicable to non-disadvantaged individuals and concerns that seek to have an ownership interest in an applicant or Participant. The regulation currently provides that a non-disadvantaged individual or another business concern in the same or similar line of business generally cannot own more than a 10 percent interest in a Participant that is in the developmental stage or more than a 20 percent interest in a Participant in the transitional stage of the program. The proposed rule would increase the allowable ownership percentages for non-disadvantaged individuals and business concerns in the same or similar line of business from 10 and 20 percent to 20 and 30 percent. By changing 10 percent to 20 percent, the proposed rule would make this ownership restriction consistent with that contained in § 124.108(a)(4). It then follows that the current 20 percent ownership restriction for the transitional stage would also be correspondingly increased, which is why the proposed rule would raise that restriction to 30 percent.

Paragraph (i) sets forth the requirements relating to changes of ownership. Generally, 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 SBA approves the transaction in writing prior to the change. Paragraph 124.105(i)(2) authorizes three exceptions as to when prior SBA approval of a change of ownership is not needed and provides four examples implementing the change of ownership requirements, one showing when prior SBA approval is required and three showing when it is not. Prior SBA approval is not needed where all non-disadvantaged individual (or entity) owners involved in the change of ownership own no more than a 20 percent interest in the concern both before and after the transaction. To be consistent with the proposed change to § 124.105(h) above, the proposed rule would require prior approval only where a non-disadvantaged individual owns more than a 30 percent interest in the 8(a) Participant either before or after the transaction. The proposed rule would also add a fourth exception as to when prior SBA approval is not required. Specifically, the proposed rule would specify that prior SBA approval is not required where the 8(a) Participant has never received an 8(a) contract. The rule would then clarify that where prior approval is not required, the Participant must notify SBA within 60 days of such a change in ownership, or before it submits an offer for an 8(a) contract, whichever occurs first. SBA must be able to determine the continued eligibility of the Participant before it accepts a sole source 8(a) procurement on behalf of or authorizes the award of a competitive 8(a) award to the Participant. Finally, the rule would make changes to the examples set forth in § 124.105(i)(2) to reflect the change from 20 percent to 30 percent and would add a fifth example highlighting that prior SBA approval is not required where a Participant has never received an 8(a) contract.

Paragraph 124.105(k) currently provides generally that SBA considers applicable state community property laws in determining ownership interests when an owner resides in a community property state. Under that provision, a transfer or relinquishment of interest by the non-disadvantaged spouse may be necessary in some cases to establish eligibility for the 8(a) BD program. SBA initially promulgated this provision in order to comply with the statutory requirement that an 8(a) concern must be at least 51 percent “unconditionally” owned one or more socially and economically disadvantaged individuals. Upon reexamination, SBA believes that it may not be necessary to consider community property laws when determining that a specific individual does in fact “unconditionally” own an applicant or Participant. In order to align the 8(a) BD ownership requirements with those applicable in the WOSB and VetCert programs, SBA proposes to eliminate § 124.105(k). SBA requests comments as to whether not considering community property laws complies with the unconditional ownership requirement and whether previously required transmutation agreements ( i.e., agreements between spouses relinquishing some percentage of his or her community property ownership rights in an applicant or Participant) are permissible under state law.

The proposed rule would add a new § 124.105(k) to allow a right of first refusal granting a non-disadvantaged individual the contractual right to purchase the ownership interests of a disadvantaged individual without affecting the unconditional nature of ownership, if the terms follow normal commercial practices. This would align 8(a) ownership requirements with those set forth in the VetCert program. Of course, if those rights are exercised by a non-disadvantaged individual after certification that result in disadvantaged individuals owning less than 51% of the concern, SBA will initiate termination proceedings. This same provision would be added to § 127.201(b) to conform the WOSB unconditional ownership requirements as well.

The proposed rule would also align the language in § 124.105(f)(1) (for the 8(a) BD program), § 127. (for the WOSB program), and § 128.202(g) (for the VetCert program) regarding the distribution of profits. There was a slight wording difference in the 8(a) BD and VetCert regulations and the proposed rule would make the wording consistent. The same provision would also be added to the WOSB regulations.

Sections 124.106(e) (for the 8(a) BD program), 127.202(g) (for the WOSB program), and 128.203(h) (for VetCert program) address limitations on the involvement of non-qualifying individuals that can affect a business concern's eligibility for participation in the 8(a) BD, WOSB, and VetCert programs based on a qualifying individual's lack of control. Basically, each of these provisions generally prohibit a non-qualifying individual from unduly influencing the day-to-day management and control of qualifying individuals. The language of the three provisions, however, is not entirely consistent. This has led to questions as to whether SBA intended different application of the control requirements for different programs. In order to clear up any confusion, this rule proposes to change the wording of the three provisions to bring them more in line with each other to ensure that the control requirement is consistently applied. For example, the WOSB regulations did not previously contain a provision that generally required a qualifying woman to be the highest compensated individual in the business concern unless the concern demonstrates that the compensation to be received by a non-qualifying woman is commercially reasonable or that the qualifying woman has elected to take ( print page 68279) lower compensation to benefit the concern. Such a provision was contained previously in both the 8(a) BD and VetCert regulations, and the proposed rule would add a similar provision for the WOSB program. In connection with the 8(a) BD program, the proposed rule would change the requirement that an 8(a) Participant must obtain the prior written consent of SBA before changing the compensation paid to the highest-ranking officer to be below that paid to a non-disadvantaged individual to a requirement that the Participant must notify SBA within 30 calendar days of such an occurrence. SBA believes that notification is preferable to prior approval because SBA does not want a Participant to lose an individual with a particular expertise where the approval process is lengthy. SBA would then have to determine that the compensation to be received by the non-disadvantaged individual is commercially reasonable or that the highest-ranking officer has elected to take lower compensation to benefit the Participant before SBA may determine that the Participant is eligible for an 8(a) award.

Section 124.107(a) currently provides that an applicant's income tax returns for each of the two previous tax years must show operating revenues in the primary industry in which the applicant is seeking 8(a) BD certification. The proposed rule would revise this provision to require merely that an applicant's income tax returns for each of the two previous tax years must show operating revenues. Revenue on an income tax return may not be aligned by industry or NAICS code and SBA does not seek to deny entry to the 8(a) program to a firm that has performed work in its projected primary industry but that work may not have been properly captured on its tax return.

Section 124.107(e) requires that, as a condition to show an 8(a) applicant's potential for success, the applicant or individuals employed by the applicant must hold all requisite licenses if the concern is engaged in an industry requiring professional licensing ( e.g., public accountancy, law, professional engineering). Generally, the potential-for-success requirements carry out the requirement in section 8(a)(7)(A) of the Small Business Act, 15 U.S.C. 637(a)(7)(A) , that SBA determine that an 8(a) applicant have reasonable prospects for success in competing in the private sector. That same statutory provision, however, requires SBA to determine that with contract, financial, technical, and management support the applicant will be able to perform contracts which may be awarded to it. As such, SBA believes that issues of current responsibility should not prevent an applicant from being eligible for the 8(a) BD program where SBA believes that the business concern will be able to perform contracts awarded to it with certain contract, financial, technical, or management support. Although a business concern applying to the 8(a) BD program that does not have a required professional license may not currently be responsible to be awarded certain 8(a) contracts, as long as SBA determines that the concern would be able to perform such contracts with appropriate support, SBA believes that the concern should be eligible for participation in the 8(a) BD program. The current section 124.107(e) affects relatively few businesses because it applies only to those in an industry requiring a professional license. This rule proposes to remove this professional-licensing requirement. It is not only inapplicable to most applicants, it also can be overcome before any 8(a) contract opportunity is sought by those concerns to which it applies. SBA also considered changing the current license provision to requiring an applicant to acknowledge that a license is needed for its primary business and to certify that it has such a license or will obtain a license when performing a contract. SBA requests comments on both alternatives.

Section 124.108 sets forth other eligibility requirements that apply to 8(a) applicants and Participants. One of those requirements is that SBA must determine that an applicant or Participant and all of its principals possess good character. The 8(a) BD program is one of several certification programs to help small businesses win federal contracting awards, but the scope of the 8(a) BD program is different. For the WOSB and VetCert programs, SBA only determines whether a small business applicant is owned and controlled by one or more qualifying individuals. SBA does not look at character or business integrity in determining whether a small business is owned and controlled by qualifying individuals. Similarly, for the HUBZone program, SBA only determines whether the small business applicant is located in and employs residents of a historically underutilized business zone. SBA certification of these qualifications allows the certified small businesses to compete for certain federal contracts. These are not business development programs. Although SBA determines whether an 8(a) small business applicant is owned and controlled by one or more qualifying individuals, the program is not limited to this certification. Its scope is broader and includes a multi-year business development program with eligibility for specific management and technical assistance from SBA to support the business's successful competition in the marketplace. SBA requires “good character” to be admitted to this development program.

The proposed rule would limit the grounds that would serve as an automatic, mandatory bar from participation in the 8(a) BD program based on good character ( i.e., either an application denied or possible termination action commenced against a current Participant). It would remove the automatic bar for “possible criminal conduct” and amend the lack of business integrity bar to lack of business integrity as demonstrated by conduct that could be grounds for suspension or debarment. Expanding access to the 8(a) BD program aids the federal government's goal of helping small businesses win at least 23% of federal contracting dollars each year. The 8(a) BD program gives socially and economically disadvantaged small businesses access to important tools and training to help them become stronger competitors in the marketplace. The proposed rule also will facilitate employment opportunities for individuals with criminal history records. Research demonstrates that employment increases success during reentry, decreases the risk of recidivism, and strengthens both public safety and economic opportunity. Research also demonstrates that entrepreneurship provides an important and distinct avenue for economic stability given persistent stigma from employers who may decline to hire people with criminal history records. Notably, SBA found several studies showing the difficulty of obtaining employment for formerly incarcerated people ( see, e.g., Investigating Prisoner Reentry: The Impact of Conviction Status on the Employment Prospects of Young Men ; [ 1 ] from the Department of Justice's National Institute of Justice Grant) and a positive link between employment and successful reentry, including preventing recidivism ( see, e.g., Local Labor Markets and Criminal ( print page 68280) Recidivism [ 2 ] in the Journal of Public Economics). Moreover, because individuals with criminal history records may face barriers in obtaining employment, entrepreneurship can be a productive option, and SBA found several studies showing the potential for entrepreneurship among individuals with criminal records ( see, e.g., From Prison to Entrepreneurship [ 3 ] in the American Academy of Political and Social Science).

SBA will continue to conduct internal checks related to an applicant's business integrity that includes the applicant's criminal history, and consider all factors in evaluating whether an applicant would be a good candidate to participate in the 8(a) BD program. SBA will consider each application individually. The proposed rule does not change business integrity requirements of procuring agency contracting officers or any business integrity evaluations done by them. Procuring agency contracting officers evaluate offerors' responsibility to perform federal contracts prior to award, a process that can include an evaluation of business integrity.

Where fraudulent activity occurs after a firm is admitted to the 8(a) BD program, whether that activity results in an indictment, conviction, civil judgment or not, SBA may immediately move to protect the Government's interests. This could be through suspension/termination from the 8(a) BD program or through a Government-wide suspension/debarment action. The existence of a cause for suspension, termination or debarment, however, does not necessarily require that the Participant be suspended, terminated or debarred. SBA will consider the seriousness of the Participant's acts or omissions and any remedial measures or mitigating factors made by the Participant.

Sections 124.108(e) (for the 8(a) BD program) and 128.201(b) (for the VetCert program) provide generally that a small business concern is ineligible for certification if the concern or any of its principals has failed to pay significant financial obligations owed to the Federal Government. A similar provision is not currently contained in the WOSB or HUBZone eligibility requirements. This rule proposes to apply that restriction to the WOSB and HUBZone programs as well. To ensure consistency among the programs, the rule would also revise the language in §§ 124.108(e) and 128.201(b) so that the regulatory language applying to all four programs is the same.

Sections 124.204(d) (for the 8(a) BD program), 126.306(d) (for the HUBZone program), 127.304(d) (for the WOSB program), and 128.302 (for the VetCert program) set forth the date at which at applicant must be eligible for each certification program. The wording of the regulations is not consistent. Section 124.204(d) specifies that an applicant must be eligible as of the date SBA issues a decision. Section 126.306(d) specifies that an applicant must be eligible as of the date it submitted its application and at the time SBA issues a decision. Section 127.304(d) specifies that an applicant must be eligible as of the date it submitted its application and up until the time SBA issues a decision. Section 128.302 details how SBA processes applications for VOSB and SDVOSB certification, but does not specifically address the point at which eligibility is determined. SBA is in the process of establishing a uniform application processing system. That system will allow a firm to simultaneously apply for multiple certifications for which it believes it is eligible. SBA believes that it is critical that eligibility be determined at the same point in time for all certification programs. If, for example, a firm amends a corporate document to come into compliance with a specific control requirement after initially submitting its application for the 8(a) BD program and the WOSB program, the current regulations would support a finding that a qualifying individual did control the applicant for 8(a) BD purposes but did not control the applicant for WOSB purposes. SBA believes that would be an inappropriate result. Therefore, this proposed rule amends each of these sections to require consistent wording that an applicant must be eligible as of the date SBA issues a decision. Although the proposed rule would specify that an applicant must be eligible as of the date SBA issues a decision, implicitly a small business must believe that it is eligible at the time it applies for certification for any program. For purposes of applying for HUBZone certification, an applicant must submit payroll records for the four-week period immediately prior to its application date. It would be impossible to require payroll records for some unknown future date. After submitting an application for any program, a concern must immediately notify SBA of any changes that could affect its eligibility and provide information and documents to verify the changes.

The proposed rule would add a new provision to § 124.303(c) (for the 8(a) BD program), to § 126.503 (for the HUBZone program), to § 127.405(f) (for the WOSB program), and to § 128.310(g) (for the VetCert program) providing that a firm that is decertified or terminated from one SBA certification program due to the submission of false or misleading information may be removed from SBA's other small business contracting programs. In addition, the proposed rule would provide that SBA may require the firm to enter into an administrative agreement as a condition of admission or re-admission to one of the SBA certification programs. SBA believes that a firm that submits false information to obtain a certification in one program is more likely to submit false information to other SBA programs, and SBA needs a mechanism by which to investigate whether this has occurred and remove non-responsible firms from its programs expeditiously.

Section 124.207 provides that a concern which has been declined for 8(a) BD program participation may submit a new application for admission to the program at any time after 90 days from the date of the Agency's final decision to decline. It also provides that a concern that has been declined three times within 18 months of the date of the first final Agency decision finding the concern ineligible cannot submit a new application for admission to the program until 12 months from the date of the third final Agency decision to decline. The proposed rule would remove that second provision. No other program has such a restriction and SBA does not seek to thwart firms who have made legitimate attempts to overcome deficiencies from again applying to the 8(a) BD program.

Section 124.503 addresses how SBA will accept a procurement offered for award through the 8(a) BD program. An agency may offer a sole source procurement to SBA nominating a particular 8(a) Participant for performance based on the firm's self- ( print page 68281) marketing efforts, or may offer it as an open requirement ( i.e., an offering to the program generally, but not in support of a particular 8(a) Participant). SBA's acceptance policies for such offerings are contained in §§ 124.503(c) and (d), respectively. SBA has long recognized the importance of self-marketing in a Participant's business development and continued viability. Thus, where an agency offers a sole source 8(a) procurement in support of a particular Participant as a result of self-marketing and SBA deems it suitable for the program, SBA will normally accept it on behalf of the Participant recommended by the agency as long as specified eligibility criteria are met. This policy was first incorporated in SBA regulations in 1986, 51 FR 36132 at 36149, but had been previously part of the standard operating procedure for the 8(a) BD program.

Section 303 of the Business Opportunity Development Reform Act of 1988 (BODRA), Public Law No. 100-656, tit. III, § 303, 102 Stat. 3865 (1988), adopted and expanded SBA's sole source contract acceptance procedures, mandating that SBA shall award a sole source 8(a) contract to the 8(a) firm nominated by the offering agency, provided the following three statutory criteria are met: (i) the Program Participant is determined to be a responsible contractor with respect to performance of such contract opportunity; (ii) the award of such contract would be consistent with the Program Participant's business plan; and (iii) the award of the contract would not result in the Program Participant exceeding its 8(a) competitive business mix. This mandate is codified in Section 8(a)(16)(A) of the Small Business Act, 15 U.S.C. 637(a)(16)(A) . BODRA also directed SBA to promote—to the maximum extent practicable—the equitable geographic distribution of sole source 8(a) contracts. In response to BODRA, SBA promulgated a rule stating that it would consider, among other things, equitable geographic distribution for open 8(a) sole source contracts offered to the 8(a) BD program. This policy is currently set forth in paragraph 124.503(d)(3).

There has been some confusion as to whether SBA considers equitable contract distribution for a follow-on to an 8(a) procurement offered to SBA on behalf of a specific 8(a) Participant. In SBA's view, the imperative statutory command of Section 8(a)(16)(A) restricts its authority to affirmatively deny a contract offering made on behalf of a specific Participant based on considerations related to the equitable distribution of sole source 8(a) contracts, irrespective of whether the procurement is a “new” or repetitive 8(a) requirement. The proposed rule would clarify this position by providing that § 124.503(g)(1)(iii) applies only to open sole source 8(a) offerings.

Section 124.504 identifies several reasons why SBA will not accept a particular requirement for award through the 8(a) BD program. One of those reasons is where the procuring activity issued a solicitation for or otherwise expressed publicly a clear intent to award a contract as a small business set-aside, or to use the HUBZone, VetCert, or WOSB programs prior to offering the requirement to SBA for award as an 8(a) contract. This rule proposes to authorize SBA to accept a requirement for the 8(a) program where the AA/BD determines that there is a reasonable basis to cancel the initial solicitation or, if a solicitation had not yet been issued, a reasonable basis for the procuring agency to change its initial clear expression of intent to procure outside the 8(a) BD program. This would happen, for example, where the procuring agency's needs have changed since the initial solicitation was issued such that the solicitation no longer represents its current need, or where appropriations are no longer available for the requirement as anticipated, and the solicitation must be cancelled until a following fiscal year where funds are available. A change in strategy only ( i.e., an agency seeks to solicit through the 8(a) BD program instead of through another previously identified program) would never constitute a reasonable basis for SBA to accept the requirement into the 8(a) BD program.

Section 124.509 establishes non-8(a) business activity targets (BATs) to ensure that Participants do not develop an unreasonable reliance on 8(a) awards. The reason for requiring a certain percentage of non-8(a) revenue during a Participant's last five years in the 8(a) BD program is to strengthen the Participant's ability to prosper once it exits the program. Congress believed that firms that were totally reliant on the 8(a) BD program for their revenues would be ill prepared to survive as on-going business concerns after leaving the program. As such, Congress required a certain percentage of non-8(a) revenue during the transitional stage of program participation to bolster Participants' continued viability. SBA amended § 124.509 as part of a comprehensive final rule in October 2020. See 85 FR 66146 , 66189 (Oct. 16, 2020). In that final rule, SBA recognized that a strict prohibition on a Participant receiving new sole source 8(a) contracts should be imposed only where the Participant has not made good faith efforts to meet its applicable non-8(a) business activity target. SBA sought to provide guidance regarding what SBA considers to be good faith efforts in a final rule published in April 2023. See 88 FR 26164 , 26208 (April 27, 2023). This rule proposes to provide further guidance on how SBA considers unsuccessful offers in determining whether good faith efforts have been made. Specifically, in determining the projected revenue that SBA will consider in determining whether one or more unsuccessful offers submitted by a Participant would have given the Participant sufficient revenues to achieve the applicable non-8(a) business activity target, the proposed rule would first provide that SBA will consider only procurements for which the Participant had reasonable prospects of success. The proposed regulatory text would include an example showing how revenue for an unsuccessful offer would be considered. Where a Participant has never received a contract in excess of a relatively small amount (the example cites $5M), SBA would not count any revenue from an unsuccessful offer for a contract that greatly exceeds what the Participant has previously performed (the example points to $100M contract). In such a case, the Participant would not have a reasonable prospect of success in submitting an offer for a contract that was substantially higher than anything it had performed in the past. The proposed rule would also clarify that only the value of the base year of the contract for which the Participant's offer was unsuccessful would be considered in determining whether the Participant made good faith efforts to achieve its non-8(a) BAT. There has been some confusion as to whether the value of the entire contract or only the value of the base year should be considered in determining whether the revenues from that contract, if received, would have brought the Participant back into compliance with its BAT. SBA believes that it does not make sense to consider more than the revenues from the base year of the contract. If the Participant had been successful and was awarded that contract, pursuant to § 124.509(b)(3) SBA would measure the Participant's compliance with the applicable BAT by comparing the Participant's non-8(a) revenue to its total revenue during the program year just completed. Thus, SBA would look at the non-8(a) revenues ( print page 68282) received, not the total value of the non-8(a) contract that a Participant is performing. SBA believes the same should happen when considering whether a Participant has made good faith efforts to meet its BAT.

Section 124.514 provides guidance regarding the exercise of 8(a) options and modifications. Paragraph 124.514(a)(1) currently states that if a concern has graduated or been terminated from the 8(a) BD program or is no longer small under the size standard corresponding to the NAICS code for the requirement, negotiations to price the option cannot be entered into and the option cannot be exercised. Because the regulatory language specifies graduation and termination from the program, SBA has received a few inquiries as to whether this provision applies to firms that have voluntarily exited the program. SBA has always intended this provision to apply to all firms that are no longer active Participants in the program. The proposed rule would merely make that intent clear by specifically providing that this provision applies to all firms whose term of participation in the 8(a) BD program has ended or who have otherwise exited the program through any means.

Section 124.518(c) provides that SBA may authorize another Participant to complete performance of an 8(a) contract and, in conjunction with the procuring activity, permit novation of that contract without invoking the termination for convenience or waiver provisions of § 124.515 where SBA determines that substitution would serve the business development needs of both 8(a) Participants. SBA has seen several instances where a joint venture between an 8(a) Participant and a non-8(a) business concern was awarded an 8(a) contract and for whatever reason the two firms seek to terminate the joint venture and novate the 8(a) contract individually to the 8(a) Participant that was the lead partner of the joint venture. If novation would occur, performance of the 8(a) contract would remain with an 8(a) Participant ( i.e., the 8(a) Participant that was the lead partner of the joint venture). As such the intent of the program would be furthered. It could be argued that the current § 124.518(c) authority could be used to novate the 8(a) contract in this instance; substitution would serve the business development needs of both the initial 8(a) awardee (the joint venture) and the substituting 8(a) Participant (the former lead 8(a) partner to the joint venture). However, in order to more specifically authorize such a substitution, the proposed rule would add a new § 124.518(d). SBA also seeks comments on whether it should further define how substitution “would serve the business development needs of both 8(a) Participants.” For example, where a Participant was not in compliance with its applicable business activity target, sought to transfer an 8(a) contract to another eligible 8(a) Participant through the substitution process and then sought to perform a significant portion of that contract as a subcontractor to the new 8(a) Participant (to then count the revenue from the subcontract as non-8(a) revenue), SBA would not determine that such a transfer was in the best interests of the program or serve the business development needs of both 8(a) Participants.

Section 124.602 sets forth the kind of annual financial statement an 8(a) BD Participant submits to SBA, depending upon its gross annual receipts. Currently, Participants with gross annual receipts of more than $10 million must submit to SBA audited annual financial statements prepared by a licensed independent public accountant; Participants with gross annual receipts between $2 million and $10 million must submit to SBA reviewed annual financial statements prepared by a licensed independent public accountant; and Participants with gross annual receipts of less than $2 million must submit to SBA an annual statement prepared in-house or a compilation statement prepared by a licensed independent public accountant. SBA believes that with the value of federal contracts greatly increasing over the last few years, the top dollar threshold of $10 million is being met by most Participants far more frequently. Recognizing that requiring an audited financial statement can be a significant cost to many small businesses, this rule proposes to require audited financial statements for those Participants exceeding $20 million, reviewed financial statements for those Participants with gross annual receipts between $5 million and $20 million, and in-house financial statements for those Participants with less than $5 million in annual receipts.

SBA's regulations currently make clear that a contracting activity cannot conduct a competition requiring multiple socioeconomic certifications. In this regard, § 124.501(b) prohibits a contracting activity from restricting an 8(a) competition to Participants that are also certified HUBZone small businesses, certified WOSBs or certified SDVO small businesses. There is a similar restriction for the HUBZone program in § 126.609, for the WOSB program in § 127.503(e), and for the VetCert program in § 128.404(d). However, there is no similar specific restriction for small business set-asides and reserves. Where a contracting activity seeks to require 8(a), HUBZone, WOSB or SDVO certification in addition to status as a small business, in essence the contracting activity would be soliciting as an 8(a), HUBZone, WOSB or SDVO small business contract. That is permissible. Similarly, current § 125.2(e)(6) specifies that a contracting officer may set aside orders for eligible 8(a) Participants, certified HUBZone small business concerns, SDVO small business concerns, WOSBs, and EDWOSBs against total small business set-aside multiple award contracts. As such, there should be no doubt that there can be an order or agreement set-aside or reserved for a specific type of small business ( i.e., 8(a), HUBZone, WOSB/EDWOSB, or SDVO) under a multiple award contract that itself was set aside for small business. SBA has been asked whether a contracting activity could require multiple certifications through “a small business set aside”. SBA believes that the current program specific regulations identified above would prohibit that. In order to eliminate any misinterpretation, the proposed rule would add a new § 125.2(c)(6) that would clarify that a procuring activity cannot restrict a small business set-aside or reserve (for either a contract or order) to require multiple socioeconomic program certifications in addition to a size certification.

Section 125.3 governs subcontracting plans and reporting of subcontracting achievements. SBA proposes to extend the due dates for subcontracting reports by 15 days, from 30 days to 45 days. SBA also would extend the time period for reviewing such reports by 15 days, from 60 days to 75 days. These extended time periods recognize that prime contractors are under increased reporting burdens because of order-level subcontract reporting.

Section 125.6 sets forth the limitations on subcontracting that apply to a small business prime contractor. A small business prime contractor, together with any similarly situated entity, must perform a certain specified ( print page 68283) amount of a small business contract and cannot subcontract more than that amount to another than similarly qualified small business. Paragraph 125.6(d) provides that for a multi-agency set aside contract where more than one agency can issue orders under the contract, the ordering agency must use the period of performance for each order to determine compliance. A question has arisen as to who should monitor compliance with such an order, the contracting officer for the underlying multi-agency contract or the contracting officer for the ordering agency. SBA believes that the contracting officer for the ordering agency is in the best position to monitor compliance with the limitations on subcontracting for a specific order. As such, the ordering contracting officer should monitor compliance throughout performance. At the end of performance of the order, the ordering contracting officer should inform the contracting officer for the underlying multi-agency contract if the ordering contracting officer knows that the contractor has failed to meet the applicable limitations on subcontracting requirement.

Additionally, there has been some confusion as to how work performed by leased employees is considered in determining compliance with the applicable limitation on subcontracting. Paragraph 125.6(d)(3) explains that work performed by an independent contractor shall be considered a subcontract and will therefore count against the prime contractor's limitation on subcontracting unless the independent contractor qualifies as a similarly situated entity. Unlike independent contractors, employees obtained from a temporary employee agency, professional employee organization, or leasing concern perform work under the primary direction and control of the recipient concern. For this reason, such individuals are treated as employees of the recipient concern for purposes of determining that concern's employee count under Section 121.106(a). SBA believes the same logic should apply when determining a recipient prime contractor's compliance with the limitations on subcontracting. Work performed by employees leased to the small business prime contractor shall be considered the prime contractor's self performance, and therefore will not count against the prime contractor's limitation on subcontracting. The proposed rule would clarify this position in § 125.6(d)(3).

Section 125.8(e) covers how agencies evaluate the capabilities, past performance, and experience of joint ventures, including SBA mentor-protégé joint ventures. For SBA mentor-protégé joint ventures, section 125.8(e) provides that a procuring activity may not require the protégé firm to individually meet the same evaluation or responsibility criteria as that required of other offerors generally. This provision recognizes that protégés may be less experienced when submitting an offer but, if they win the award, will gain experience and capabilities while performing with the mentor. SBA does not require, however, that every contract competition include special evaluation criteria for protégés.

A recent decision by the Court of Federal Claims has caused some confusion as to what past performance a procuring activity can require of a protégé joint venture partner and how that past performance should be evaluated. See SH Synergy, LLC v. United States, 165 Fed. Cl. 745 (2023). The SBA's mentor-protégé program is designed to enhance the capabilities of protégé firms by requiring approved mentors to provide business development assistance to protégé firms and to improve the protégé firms' ability to successfully compete for federal contracts. The program recognizes that many small businesses may not have the necessary past performance and experience to individually compete successfully for certain larger contracts. Thus, it allows joint ventures between a protégé firm and a large business mentor to qualify as small to allow protégé firms to gain valuable experience overseeing and performing larger contracts. While the joint venture as a whole must meet the applicable limitation on subcontracting (or in other words perform a certain percentage of the contract), the protégé firm must perform at least 40% of all the work done by the joint venture partners in the aggregate. Because of that 40% requirement, some procuring activities require protégé joint venture partners to demonstrate some level of past performance as part of a joint venture's offer. Although SBA's current regulation provides that a procuring activity may not require the protégé firm to individually meet the same evaluation or responsibility criteria as that required of other offerors generally, it does not provide guidance on what a procuring activity could require. This rule proposes to provide such guidance. Specifically, the rule proposes to permit a procuring activity to require some past performance at a dollar level below what would be required of joint venture mentor partners or of individual offerors. The rule would provide an example of how this could work. In the example, where offerors must generally demonstrate successful performance on five contracts with a value of at least $20 million, a procuring activity could require a protégé joint venture partner to demonstrate one or two contracts valued at $10 million or $8 million. In addition, if a procuring activity requires a protégé joint venture partner to demonstrate successful performance on two contracts valued at $10 million or more, successful performance by the protégé firm on those $10 million contracts shall be rated equivalently to successful performance by the mentor partner to the joint venture or any other individual offeror on $20 million contracts.

Where a joint venture is the apparent successful offeror for a contract set aside or reserved for small business, § 125.8(f) currently authorizes the procuring activity to execute a contract in the name of the joint venture entity or a small business partner to the joint venture. There has been some confusion as to whether a procuring activity can choose to either execute the contract in the name of the joint venture entity or to a small business partner to the joint venture. SBA did not intend such discretion. SBA's joint venture rules set forth in § 121.103(h)(1) provide that a joint venture may be in the form of a formal or informal partnership or exist as a separate limited liability company or other separate legal entity. Where a joint venture exists as a separate legal entity, SBA intended a contract to be executed in the name of the joint venture. SBA intended to allow contracts successfully won by a joint venture to be awarded in the name of the small business partner only where the joint venture was not a separate legal entity, but rather an informal arrangement that had a written joint venture agreement that complied with SBA's regulations. The proposed rule would clarify SBA's intent.

Section 125.9 sets forth the requirements relating to SBA's mentor-protégé program. Paragraph 125.9(b) specifies rules pertaining to firms seeking to become mentors and to firms which have been approved as mentors in the program. The introductory language to that paragraph provides that any concern that demonstrates a commitment and the ability to assist small business concerns may act as a mentor, including other than small businesses. There has been some confusion as to whether no-profit ( print page 68284) entities may act as mentors. The statutory authority for the mentor-protégé program specifies that the term “mentor” means a for-profit business concern, of any size, that has the ability to assist and commits to assisting a protege to compete for Federal prime contracts and subcontracts. 15 U.S.C. 657r(d) . Although § 125.9(b) does not specifically state that a mentor must be a for-profit entity, it requires a mentor to be a “concern” and that term is defined in SBA's regulations as a business entity organized for profit under § 121.105(1)(1). To eliminate any confusion, this rule proposes to clarify that only for-profit business concerns may be mentors.

Paragraph 125.9(b)(3)(ii)(B) authorizes a mentor to purchase another business entity that is also an SBA-approved mentor of one or more protégé small business concerns where the purchasing mentor commits to honoring the obligations under the seller's mentor-protégé agreement. Paragraph 125.9(b)(3)(i) provides that a mentor that has more than one protégé cannot submit competing offers in response to a solicitation for a specific procurement through separate joint ventures with different protégés. However, it is possible that the initial or selling mentor may be a contract holder as a joint venture with a protégé on the same multiple award contract where the acquiring mentor is also a contract holder as a joint venture with its protégé. In such a case, after the purchase and the purchasing mentor committing to fulfill the obligations of the selling mentor's mentor-protégé agreement, the purchasing mentor could then have two different joint ventures as contract holders on the same multiple award contract. This could allow the mentor to dictate which joint venture could compete for any specific order under the multiple award contract. SBA does not believe that the mentor should be able to choose one protégé over another to compete for an order. In order to clarify SBA's intent, the proposed rule would provide that where a mentor purchases another business entity that is also an SBA-approved mentor that is a contract holder as a joint venture with a protégé small business and the mentor is also a contract holder with a protégé small business on that same multiple award contract, the mentor must exit one of those joint venture relationships. SBA understands that this could adversely affect one of the protégé firms involved in a joint venture. To alleviate any harm to a protégé, the proposed rule would also permit the protégé firm connected to the joint venture from which the mentor exits to seek to acquire the new mentor's interest in the underlying multiple award contract or reserve and work with the contracting officer to determine whether novation of such contract or reserve to itself only may be appropriate where it is consistent with 41 U.S.C. 6305 and FAR 42.1204. The protégé may also seek to replace the new mentor with another business in the joint venture such that the revised joint venture continues to qualify as small. Similarly, the proposed rule would also add a new § 125.9(d)(1)(iv) which would give a protégé firm a right of first refusal to purchase a mentor's interest in a mentor-protégé joint venture where the mentor seeks to sell its interest in the joint venture.

The proposed rule would also redesignate current § 125.9(e)(6) as § 125.9(c)(4). This provision relates to rules affecting protégé firms and SBA believes it should more appropriately be located in § 125.9(c), which has a heading entitled “Proteges.” The proposed rule would add clarifying language to redesignated § 125.9(c)(4)(iv) to make clear that a concern cannot be a protégé for a total of more than 12 years. There has been some confusion that if a protégé elects to extend its mentor-protégé relationship with the same mentor for an additional six-year period that the protégé could somehow be able to participate in the mentor-protégé program as a protégé for more than 12 years. SBA believes that the current regulations clearly restrict such participation to a total of 12 years. Nevertheless, in order to dispel any possible contrary interpretation, the proposed rule would specify that a firm could be a protégé for up to 12 years, whether the concern has a mentor-protégé relationship with two different mentors or the same mentor for second six-year period.

Finally, the proposed rule would add a new § 125.9(c)(5). Within the provisions relating to mentors in § 125.9(b), the current regulations authorize a firm to purchase another firm that is currently an approved mentor in SBA's mentor-protégé program and to continue that mentor-protégé relationship if the purchasing firm commits to honoring the obligations under the seller's mentor-protégé agreement. The regulations do not, however, currently address any rights a protégé may have where such a sale occurs. There are times that the former mentor-protégé agreement would not be a good fit with the purchasing business concern. The purchasing concern may have different capabilities than the selling concern and may not be the best business concern to carry out the previous mentor's commitments. Where the purchasing concern is not able to fulfill the requirements of the existing mentor-protégé agreements as written, SBA believes that the protégé firm should be able to either negotiate a revised mentor-protégé agreement with the buying concern or terminate the mentor-protégé agreement if the protégé believes the buying concern is not a good fit for it. This right of the protégé would be limited to where the new mentor would not fulfill the former mentor-protégé agreement. SBA would have to approve any revised mentor-protégé agreement. If the mentor-protégé agreement is terminated, the protégé firm could seek another business concern to enter a mentor-protégé relationship for a duration not to exceed six years minus the length of the mentor-protégé relationship with the former mentor.

SBA proposes to relocate size recertification and small business program status recertification to new § 125.12. Historically, size and status recertification have been separately addressed in parts 121 (for size), 124 (for 8(a) BD), 126 (for HUBZone), 127 (for WOSB), and 128 (for service-disabled veteran-owned small business or SDVOSB) of SBA's regulations. Differences in the regulatory text are an unintended result of placing the size and status recertification rules across multiple sections of title 13. SBA believes that the rules regarding recertification should be the same for size and status, across all SBA small business government contracting and business development programs. The consolidation of the rules into one section that is cross-referenced in each small business program regulation would simplify the text and ensure easier, more consistent interpretation and application of the regulations. The requirements for recertification currently contained in § 121.404(g) (for size), § 126.619 (for HUBZone status), § 127.504(h) (for WOSB/EDWOSB status), and § 128.401(e) (for SDVOSB status) would be amended to reference the provisions contained in § 125.12. This change would ensure that all recertification requirements pertaining to size and status would be identical.

Size and status recertification is a complex area of SBA's regulations that requires simplification and clarity, especially in the context of exceptions to recertification and the impact of recertification. SBA's proposed ( print page 68285) consolidation and relocation of size and status recertification would make several clarifications to how SBA always intended recertification to operate, but which may be unclear from the existing regulatory text. First, a concern that recertifies as other than the size or status required for an award that it is currently performing may continue to perform that particular period of performance. Whether it can continue to receive future orders under an underlying contract or agreement after it submitted a disqualifying recertification depends upon whether the underlying contract or agreement is a single award or a multiple award vehicle. A concern that has recertified as other than small or other than a qualified program participant still may receive orders or agreements issued under a single award small business contract or agreement or unrestricted orders issued under an unrestricted multiple award contract. In either case, a procuring agency could not count the order as an award to small business or to the specific type of small business ( i.e., 8(a), WOSB, SDVOSB, or HUBZone). For any multiple award contract or agreement, the concern would not be eligible for orders set aside for small business or set aside for a specific type of small business.

Similarly, for a single award small business contract or any unrestricted contract, a concern that recertified as other than small or other than the required small business program status remains eligible to receive options. The procuring agency cannot count the option period as an award to a small business or small business program participant for goaling purposes. Such a concern may recertify as small or as the required small business program status for a subsequent option period if it meets the applicable size standard or becomes a certified small business program participant at that time. Conversely, for a multiple award small business set-aside or reserve, a concern that recertified as other than small or other than the required small business program would be ineligible to receive options.

The proposed rule would also clarify SBA's intent as to the effect of a disqualifying recertification that occurs after an offer is submitted but prior to award. For an award set aside or reserved for small business, a concern must recertify its size and, where appropriate, status if a merger, sale or acquisition occurs after an offer is submitted but prior to award. If the concern submits a disqualifying recertification, it may or may not be eligible for the award depending on when the sale, merger or acquisition occurred. If the merger, sale, or acquisition occurs within 180 days of offer submission and before award, the concern is ineligible for the award. If the merger, sale, or acquisition occurs after 180 days of its offer and before award, the concern would continue to be eligible for the award.

These proposed changes are needed to overcome several recent decisions from the GAO and SBA's Office of Hearings and Appeals (OHA). SBA believes that GAO and OHA adopted incorrect interpretations in these cases, resulting in the misapplication of SBA's size recertification regulations. SBA provides clarification through this preamble and proposed changes to the regulatory text to avoid confusion from courts or administrative venues regarding the proper and reasonable interpretation of SBA's size recertification rules.

In 2021, OHA issued a decision in Size Appeal of Odyssey Systems Consulting Group, Ltd., SBA No. SIZ-6135 (2021). Odyssey involved a small business set-aside task order that was awarded against the General Services Administration's (GSA) OASIS multiple award contract. Specifically, the task order was solicited against the small business pool that was established for the OASIS multiple award contract. The protested firm had allegedly exceeded the size standard assigned to a task order solicitation, following an acquisition by another entity. The issue on appeal was whether SBA had properly dismissed the size protest as untimely.

SBA filed comments in response to the appeal that distinguished between size recertifications requested by a contracting officer and recertifications following a merger, sale, or acquisition, only as that distinction relates to timeliness for size protests. Over the years, the distinction was misinterpreted to be broader than SBA intended and to impact eligibility for future set-aside orders against unrestricted multiple award contracts. SBA's OHA has issued several subsequent decisions to the Odyssey case that relate to this issue with the most recent in January 2024, confirming that if a concern recertifies as other than small following a merger, sale, or acquisition, the concern may remain eligible for future set-aside orders under an unrestricted multiple award contract, but not provide goaling credit. See Size Appeal of Saalex Corp. d/b/a Saalex Solutions, Inc., SBA No. SIZ-6274 at 11 (2024). This was not SBA's intended interpretation of a size recertification following a merger, sale, or acquisition, or following the requirement to recertify size in the fifth year of a long-term contract.

Any disqualifying size or status recertification precipitated by § 125.12(a) or § 125.12(b) (except for the 180-day rule discussed above), renders a concern ineligible for future set-aside or reserved awards, including awards of set-aside or reserved orders against pre-existing unrestricted or set-aside multiple award contracts. Additionally, in support of this interpretation, SBA proposes to allow requests for size determinations following any size recertification made in §§ 125.12(a) and (b) as well as those is requested by a contracting officer as set forth in § 125.12(c).

SBA notes that the requirement for size recertification has always been interpreted by SBA to apply to Blanket Purchase Agreements in addition to all other small business set-aside or reserved awards, whether those awards are executed in the form of task orders, contracts, or any other type of procurement mechanism. Following a 2022 bid protest decision from GAO, SBA explicitly added the word “agreement” at 13 CFR 121.404(g)(2)(iii) .

The proposed rule would add a new § 125.13 explaining the restrictions on fees for representatives of applicants to and participants in the 8(a) BD, HUBZone, WOSB, and VetCert programs. These restrictions are currently contained in § 124.4 for the 8(a) BD program. The proposed rule takes the language currently contained in § 124.4 for the 8(a) BD program and adds it to a new § 125.13 that would be applicable to the 8(a) BD, HUBZone, WOSB and VetCert programs. SBA considered making revisions to part 126, 127 and 128 of this title adopting the same language contained in § 124.4 for the WOSB, HUBZone and VetCert programs. Instead, SBA believes that it would be more expedient to add a new § 125.13 that would apply to all of SBA's certification programs than it would be to repeat the same language in each of the specific program area's regulations.

The proposed rule would revise the definitions for the following terms: “Certify”, “Contracting Officer (CO)”, “Decertify”, “Dynamic Small Business Search (DSBS)”, “Employee”, “HUBZone Small Business Concern”, “Indian Tribal Government”, “Interested party”, “Principal office”, “Qualified Disaster Area”, “Redesignated Area”, “Reside”, and ( print page 68286) “Small business concern (SBC)”. The proposed rule would add definitions for the terms “HUBZone Certification Date”, “HUBZone Map”, “HUBZone Resident Employee”, and “System for Award Management (SAM)”. The proposed rule would delete the definition for the term “AA/BD” because this term no longer appears in Part 126.

The proposed rule would clarify that “Certification” and “Certify” both mean the process by which SBA determines that a concern is qualified for the HUBZone program and eligible to be designated by SBA as a certified HUBZone small business concern in DSBS (or successor system).

The proposed rule would add a new definition for the term “Certification”.

The proposed rule would amend the definition of “Contracting Officer” to correct an outdated citation.

The proposed rule would amend the definition of “decertify” to clarify that a firm may voluntarily withdraw from the program without SBA needing to approve such withdrawal.

The proposed rule would amend the definition of “Dynamic Small Business Search (DSBS)” to reference “SAM, as defined in this section” rather than “the System for Award Management (SAM)”. SBA proposes to remove the words “the Dynamic Small Business Search (DSBS)” wherever they appear and add in their place the acronym “DSBS”.

The proposed rule would amend the definition of “employee” to prevent abuse and strengthen the integrity of the program. The HUBZone program was intended to provide meaningful work experiences to individuals who reside in some of the nation's most economically distressed communities to help them gain valuable skills, on-the-job experience, and upward mobility. In 2021, SBA HUBZone analysts identified a pattern in which firms put on their payroll HUBZone residents who did not perform work for those companies in order to claim them as employees and appear to qualify for the program. This has never been permitted under the HUBZone regulations because allowing this practice would undermine the purpose of the HUBZone program.

In response to the discovery of this practice and to prevent fraud and abuse in the program, this proposed rule would increase the number of hours that an individual must work to be considered an employee for HUBZone purposes to 80 hours per month. Under SBA's current regulations, an employee is defined as an individual “employed on a full-time, part-time, or other basis, so long as that individual works a minimum of 40 hours during the four-week period immediately prior to the relevant date of review . . .” 13 CFR 126.103 . SBA believes that the minimum 40 hours per month is not sufficient to promote the purpose of the program. Furthermore, under the current 40 hour per month requirement, an individual could work 40 hours in one week and be off the remaining three weeks of the month. If all HUBZone employees did the same, the “principal office” could be empty and closed for the remaining three weeks of the month. SBA believes that there needs to be a legitimate presence in the HUBZone, and this includes occupying the principal office and requiring that office to be open during normal business hours, and requiring employees to work significantly at that office. SBA does not believe that a firm that can close its “principal office” three weeks every month meets that legitimate presence, but rather that there should be a consistent presence at the principal office. SBA also notes that an 80 hour per month requirement would be consistent with how the 8(a) BD program treats employees establishing a bona fide place of business. In that context, § 124.3 defines the term bona fide place of business for 8(a) construction contracts to mean a location where an 8(a) BD Participant regularly maintains an office within the appropriate geographical boundary which employs at least one individual who works at least 20 hours per week at that location. The 80 hours per month requirement in this proposed rule would be in line with that 20 hours per week requirement. SBA requests comments on whether 80 hours per month is an appropriate threshold and whether there should be a minimum number of hours per week. SBA also seeks comments on whether there should be an exception to the 80 hours per month threshold for a limited number (or percentage) of individuals where such individuals are working at least 40 hours per month.

In addition, the proposed rule would clarify the existing requirement that an individual must be performing work for the concern in order to be considered an employee for HUBZone purposes. This proposed rule would provide that in order to ensure that an individual is performing work for the business concern, SBA may request a combination of job descriptions, resumes, detailed timesheets, sample work product and other relevant documentation.

The proposed rule also would delete the provision providing that individuals who receive in-kind compensation may be considered employees. The current regulations provide that someone receiving in-kind compensation may be considered an employee, where the compensation is commensurate with the work performed by the individual and provides a demonstrable financial value to the individual, and where the arrangement is compliant with all relevant federal and state laws, such as federal tax laws. SBA is proposing to eliminate this provision because SBA has found that little to no firms are able to meet these requirements. The process of requesting and reviewing documentation that is ultimately insufficient has only served to slow down application processing.

Finally, SBA is requesting comments on when reservists should be considered employees for HUBZone purposes. When reservists are called up for active duty, companies may be required to hold their positions for them, which may mean those individuals appear on the company's payroll with zero hours listed. SBA requests feedback on whether there are scenarios when such individuals should be treated as employees for HUBZone purposes.

The proposed rule would provide that individuals who are obtained “from a concern primarily engaged in leasing employees” (emphasis added) are generally considered employees. The current regulations provide that individuals obtained from a “leasing concern” are generally considered employees, however it has been SBA's policy for a number of years that leased employees will only be considered employees for HUBZone purposes where they are leased from a concern that is primarily engaged in leasing employees. This policy is consistent with SBA's size regulations at § 121.103(b)(4), which provide: “Business concerns which lease employees from concerns primarily engaged in leasing employees to other businesses . . . are not affiliated with the leasing company . . . solely on the basis of a leasing agreement.”

The proposed rule would add a new definition for the term “HUBZone Certification Date” providing that this is the date on which SBA approves a concern's application for HUBZone certification and is the date specified in the concern's certification letter. The proposed definition would provide that if a concern leaves the HUBZone program and reapplies for certification, their HUBZone certification date is the date SBA approves the concern's most recent application.

The proposed rule would add a new definition for the term “HUBZone Map” providing that the HUBZone Map is a ( print page 68287) publicly accessible online tool that depicts HUBZones.

The proposed rule would add a new definition for the term “HUBZone Resident Employee” providing that this means an individual who meets the definition of an employee and who SBA has determined resides in a HUBZone.”

The proposed rule would amend the definition of the term “HUBZone small business concern” by deleting the last sentence, which provides: “A concern that was a certified HUBZone small business concern as of December 12, 2017, and that had its principal office located in a Redesignated Area set to expire prior to January 1, 2020, shall remain a certified HUBZone small business concern until June 30, 2023, so long as all other HUBZone eligibility requirements are met.” This is a reference to the previous map freeze, and since the map freeze ended on June 30, 2023, this language is no longer a necessary.

The proposed rule would amend the definition of “Indian Tribal Government” to make it consistent with the definition of the term “Indian tribe” in the 8(a) BD Program regulations at § 124.3 of this chapter. Specifically, the proposed rule revises the definition to explicitly allow participation by State-recognized tribes.

The proposed rule would amend the definition of “interested party” to prevent non-HUBZone firms from filing a HUBZone protest on a HUBZone set-aside procurement. Currently, an interested party is defined as any concern that submits an offer for a specific HUBZone set-aside contract or order, or any concern that submitted an offer in full and open competition and its opportunity for award will be affected by a price evaluation preference given a qualified HUBZone small business concern. In the context of a HUBZone set-aside contract, SBA does not believe that a firm that is not itself a qualified HUBZone small business concern should be able to submit a protest. In other words, a large business or a small business which is not a qualified HUBZone small business should not be able to protest the HUBZone status of the apparent successful offeror on a HUBZone set aside contract merely because it submitted an offer for that contract or order. The large business or small business which is not a qualified HUBZone small business is not harmed by an award to the apparent successful offeror since it has no right itself to that award. It is ineligible for that award. Only firms that are capable of winning the HUBZone set-aside contract or order should be able to protest the HUBZone status of an apparent successful offeror. SBA has seen situations where a non-eligible firm has submitted an offer and then protested the HUBZone status of the apparent successful offeror. SBA believes this is not the intent of the protest process and causes unnecessary delays. If such a “protest” raises a genuine concern, SBA can always adopt it as an SBA-initiated protest. However, often this is a delay tactic used by an incumbent contractor protesting the apparent successful offeror in order to continue to perform the underlying work while the protest is resolved. This change would not affect the ability of a large business to protest the HUBZone status of an apparent successful offeror where the apparent successful offeror received the benefit of the HUBZone price evaluation preference in an unrestricted competition and the large business submitted an offer for that contract. In such a case, a large business could otherwise be eligible for the award of the contract. SBA is proposing a similar change to the WOSB regulations through a separate rulemaking.

The proposed rule would amend the definition of “principal office” to make several changes and clarifications. First, the proposed rule would require firms to provide a lease that commenced at least 30 days prior to the date of SBA's review and ends at least 60 days after the date of SBA's review. Second, the proposed rule would clarify the requirement that a firm must conduct business from the location identified as the firm's principal office and may be required to demonstrate that it is doing so by providing documentation such as photos and/or providing a live or virtual walk-through of the space. The proposed rule would also provide that for shared working spaces (or “coworking” spaces), firms will need to provide evidence that the firm has dedicated space within any shared location, and that such dedicated space contains sufficient work surface area, furniture, and equipment to accommodate the number of employees claimed to work from this location. The proposed rule would specify that a virtual office (or other location where a firm only receives mail and/or occasionally performs business) does not qualify as a principal office. Third, the proposed rule would add a provision stating that if 100% of a firm's employees telework ( i.e., work the majority of the time from their homes), then at least 51% of its employees must work from HUBZone locations and the firm's principal office would be the location where its records are kept. One of the purposes of the principal office requirement is to provide an infusion of capital into the HUBZone area with employees utilizing the services of other business concerns located near the principal office is situated. Where all of a firm's employees telework, that intent cannot be fulfilled. However, SBA understands that in today's business environment, firms are utilizing telework employees more and more. With that understanding, SBA proposes to allow 100% of a firm's employees to telework, but where that occurs would require the firm to have 51% of its employees reside in a HUBZone instead of the normal 35%. SBA believes that such an additional requirement would make up for the lack of additional capital infusion caused by not having a traditional office located in a HUBZone. In addition, SBA seeks comments on whether SBA could allow teleworking employees who reside and work within the same census tract as the firm's claimed principal office (or an adjacent census tract) to be counted as working from the principal office. If permitted, SBA believes this should be limited to firms with commercial leases and/or firms with only a single office location but seeks comments on this and other changes SBA should consider in response to the shift to telework.

The proposed rule would revise the definition of “Qualified Disaster Area” to provide that a census tract or non-metropolitan county shall be considered to be a Qualified Disaster Area for the period of time starting on the date on which the President declared the major disaster for the area in which the census tract or non-metropolitan county, as applicable, is located (or in the case of a catastrophic incident, on the date on which the catastrophic incident occurred in the area in which the census tract or non-metropolitan county, as applicable, is located) and ending on the date when SBA next updates the HUBZone Map in accordance with § 126.104(a). This is SBA's current interpretation of the statutory definition of “Qualified Disaster Area” and the proposed rule would only make that interpretation clearer.

The proposed rule would amend the definition of “Redesignated Area” to delete the last sentence, which currently reads: “However, an area that was a redesignated area on or after December 12, 2017, shall remain a redesignated area until June 30, 2023.” This is a reference to the previous map freeze, and since the map freeze ended on June 30, 2023, this language is no longer necessary.

The proposed rule would revise the definition of “reside” to provide that to ( print page 68288) determine residence, SBA will first look to an individual's address identified on his or her driver's license “or other government-issued identification.” The current regulation provides that SBA will rely on an individual's voter registration card. However, voter registration cards generally do not specify the date that they were issued and thus SBA cannot rely on them to determine how long an individual has resided at a location. In addition, SBA is proposing to change the requirement for an individual to have lived at a location for 180 calendar days immediately prior to the relevant date of review. The proposed rule would decrease this to 90 calendar days because it would allow firms to enter the program more quickly where they have employees who have resided in HUBZones for less than 180 days.

The proposed rule would amend the definition of “Small business concern (SBC)” to make it consistent with the definition contained in § 126.200(b)(1). In order to be eligible for the HUBZone program, SBA previously required that a concern qualify as small for the size standard corresponding to its primary industry. That requirement was contained both in § 126.103 and § 126.200(b)(1). SBA amended § 126.200(b)(1) to require that a concern must qualify as small under the size standard corresponding to any NAICS code listed in its profile in the System for Award Management. 88 FR 26164 , 26212 (Apr. 27, 2023). SBA inadvertently did not make a corresponding change to the definition of small business concern contained in § 126.103. The proposed rule would adjust § 126.103 to be consistent with § 126.200(b)(1).

The proposed rule would define “System for Award Management (SAM)” as having the same meaning as that which is in FAR 2.101. SBA also proposes to remove the words “System for Award Management ( SAM.gov )” wherever they appear in this part and add in their place the acronym “SAM”.

Finally, SBA proposes to remove the word “SBC” wherever it appears in this part and add in its place the phrase “small business concern”.

The proposed rule would make several amendments to § 126.104, which explains how Governor-designated covered areas become designated. First, the proposed rule would insert language providing that a State Governor may annually submit a petition to the SBA Office of the HUBZone Program requesting that certain covered areas be designated as Governor-designated covered areas. This is not a change from current policy, but rather a restatement of that policy in a more clear and direct way. Second, the proposed rule also would clarify that a petition need not seek SBA approval for those covered areas previously designated as Governor-designated covered areas. Third, the proposed rule would provide that a Governor-designated covered area will be treated as a HUBZone until SBA next updates the HUBZone Map in accordance with § 126.104(a), or one year after the petition is approved, whichever is later. Fourth, the proposed rule would authorize the Associate Administrator for Government Contracting and Business Development or designee, instead of the SBA Administrator, to approve specific covered areas to be considered as Governor-designated covered areas. SBA believes that this will reduce the amount of time to approve a petition, which will allow small businesses located in such areas the opportunity to participate more expeditiously in the HUBZone Program.

Finally, the proposed rule would remove the term “urbanized area” in the definition of “covered area” in § 126.104(d)(1). The HUBZone statute and the current regulations provide that only certain areas are eligible to become Governor-Designated Covered Areas. Such areas are referred to as “covered areas.” A “covered area” is defined in the statute and regulations as “an area in a State . . . (i) [t]hat is located outside of an urbanized area, as determined by the Bureau of the Census; (ii) [w]ith a population of not more than 50,000; and (iii) [f]or which the average unemployment rate is not less than 120 percent of the average unemployment rate of the United States or of the State in which the covered area is located, whichever is less, based on the most recent data available from the American Community Survey conducted by the Bureau of the Census.” 15 U.S.C. 657a(b)(3)(F)(v)(I) ; 13 CFR 126.104(d)(1) . Thus, the statute and implementing regulations provide that “covered areas” must be located outside of “urbanized areas.” At the time this provision was implemented, the Census Bureau defined “urbanized areas” as “urban areas” with populations of 50,000 or more. In addition, the Census Bureau defined “urban clusters” as “urban areas” with populations of more than 2,500 and less than 50,000. Given these definitions, SBA interpreted the statute to mean that areas located in “urban clusters” could be eligible for Governor's designation if they also met the unemployment requirement. In addition, SBA interpreted “area” to mean either a census tract or a county.

Following the 2020 census, the Census Bureau changed the definition of “urban area” in several ways, including by removing the distinction between “urbanized areas” and “urban clusters” and discontinuing the use of those terms. As a result, areas that previously were known as urbanized areas or urban clusters are both now simply designated as urban areas. In a Federal Register notice published on December 29, 2022, the Census Bureau noted: “Agencies using the [urban area] classification for their programs are responsible for ensuring that the classification is appropriate for their use.” To be consistent with Congressional intent, this proposed rule would amend the definition of “covered area” to remove the term “urbanized area” and instead provide that the term “covered area” means a census tract or a county “that is located outside of an urban area, as determined by the Bureau of the Census, with a population of not more than 50,000.”

The proposed rule would add a new § 126.105, explaining when the HUBZone Map will be updated in accordance with statutory requirements. Proposed § 126.105 would provide that Qualified Census Tracts and Qualified Non-Metropolitan Counties will be updated every 5 years. This is consistent with the statutory requirement for SBA to update these designations on a 5-year cycle. The proposed rule would provide that Redesignated Areas will be added to the HUBZone Map when areas cease to be designated as Qualified Census Tracts or Qualified Non-Metropolitan Counties, in accordance with the 5-year cycle, and will expire after 3 years. The proposed rule would provide that Qualified Base Closure Areas will be added to the HUBZone Map after SBA receives information that the Department of Defense has created a new base closure area and will expire after 8 years. The proposed rule would provide that Qualified Disaster Areas generally will be added to the HUBZone Map on a monthly basis, based on data received by SBA from the Federal Emergency Management Agency (FEMA), and generally will expire on the effective date of the 5-year HUBZone Map update following the declaration. Finally, the proposed rule would provide that Governor-designated covered areas will be added to the HUBZone Map after SBA approves a petition in accordance with § 126.104 and will expire on the effective date of the 5-year HUBZone Map update ( print page 68289) following the approval, or one year after the petition is approved, whichever is later.

Section 126.200 sets forth the requirements a concern must meet to be eligible as a certified HUBZone small business concern. Pursuant to § 126.200(b)(1), a concern, together with its affiliates, must qualify as a small business concern under the size standard corresponding to any NAICS code listed in its profile in SAM. This paragraph does not, however, explain how SBA will determine whether a business concern qualifies as small. Some have questioned whether SBA performs a formal size determination with respect to each application. That is not the case. In determining whether a concern seeking to be a certified HUBZone small business qualifies as small under the size standard corresponding to a specific NAICS code, SBA will accept the concern's size representation in SAM, unless there is evidence to the contrary. SBA will request a formal size determination pursuant to § 121.1001(b)(8) of this chapter where any information it possesses calls into question the concern's SAM size representation. The proposed rule would clarify SBA's intent in this regard. The proposed rule would also provide the same guidance for WOSB/EDWOSB certifications by adding a new § 127.200(e) and to VOSB/SDVOSB certifications by revising § 128.204(a).

The proposed rule would revise § 126.200(c)(1) to incorporate policy updates to the “long-term investment” provision, which was implemented through SBA's final rule published on November 26, 2019 ( 84 FR 65222 ). This provision incentivizes firms to make long-term investments in qualifying HUBZones by allowing them to maintain their principal office for up to 10 years and continue to be considered to meet the principal office requirement even if the area loses its HUBZone designation.

First, the proposed rule would provide that the 10-year “clock” starts to run on the firm's HUBZone certification date (if the investment was made prior to the firm's certification) or on the firm's recertification date that follows the execution of the lease or deed (if the investment was made after the firm's certification). For example, if a firm was certified on May 1, 2020, and purchased a building on December 1, 2020, the 10-year clock would start when the firm recertifies prior to May 1, 2023.

Second, the proposed rule would clarify SBA's current policy that a firm is not eligible to take advantage of the long-term investment provision if its principal office is in a Redesignated Area or a Qualified Disaster Area at the time of the investment. Redesignated Areas and Qualified Disaster Areas are areas that have already lost their designation as Qualified Census Tracts or Qualified Non-Metropolitan Counties because the income, poverty, and/or unemployment levels of those tracts/counties have improved beyond the statutory levels necessary to qualify as HUBZones. SBA does not believe it would be in line with the purpose of the HUBZone program—to encourage investment in low-income and high-unemployment areas—to encourage firms to invest in areas that have already surpassed the HUBZone thresholds for these socioeconomic indicators. SBA notes that if a firm's principal office is in a location that falls within both a qualifying area ( i.e., Qualified Census Tract, Qualified Non-Metropolitan County, Governor-Designated Covered Area, Qualified Base Closure Area) and a non-qualifying area ( e.g., Redesignated Area that was previously a Qualified Non-Metropolitan County) at the time of the investment, the firm would be eligible for this provision. In addition, the proposed rule would provide that this provision would not apply to an investment made within 180 days of the expiration of an area's designation as a Qualified Census Tract, Qualified Non-Metropolitan County, Governor-Designated Covered Area, or Qualified Base Closure Area.

Third, the proposed rule would provide that a firm is not eligible for this provision if its principal office is owner-occupied ( e.g., a location that also serves as a residence). In such a case, SBA does not believe that the investment in the HUBZone was primarily to develop a certified HUBZone small business.

The proposed rule would revise § 126.200(d)(1) to clarify that if a firm has one employee, that employee must reside in a HUBZone for the firm to be eligible for HUBZone certification. That has always been SBA's interpretation of the HUBZone requirements, and the proposed rule merely makes that explicit.

The proposed rule would revise § 126.200(d)(3), which addresses “Legacy HUBZone Employees” to: clarify the amount of time an individual must reside in a HUBZone in order to qualify as a Legacy HUBZone Employee; specify that residence in a Redesignated Area does not qualify someone for this provision; and to implement limits on the number of Legacy HUBZone Employees a firm may have.

First, the proposed rule would provide that a Legacy HUBZone Employee is an individual who: (a) resided in a HUBZone (other than a Redesignated Area) for at least 90 days preceding, and 180 days following, the concern's HUBZone certification date or most recent recertification date, and (b) remains an employee at the time of the concern's current recertification date.

Second, the proposed rule would clarify that an individual cannot reside in a Redesignated Area and qualify as a Legacy HUBZone Employee. This does not mean to imply that an individual who resided in a HUBZone when a firm was first certified as a HUBZone eligible firm and continued to live at that same location while the area transitioned to a Redesignated Area cannot be considered a Legacy HUBZone Employee if that individual moves to a non-HUBZone area. The proposed rule intends to clarify that an individual who qualifies as a HUBZone employee for the first time while living in a Redesignated Area cannot later be deemed a Legacy HUBZone Employee.

Third, the proposed rule would provide that a certified HUBZone small business may only have one legacy HUBZone employee at a given time. SBA supports the growth of individual HUBZone employees and allowing such employees to improve their personal residential situation. However, SBA is concerned that the Legacy HUBZone Employee concept could be abused. Without a limit on the number of Legacy HUBZone Employees permitted by SBA, a firm could potentially move all individuals into a HUBZone for a one-year period and qualify all of those individuals as Legacy HUBZone Employees without those individuals ever intending to live long-term in the HUBZone area. SBA seeks comments on what the limit on Legacy HUBZone Employees should be and whether there should be any other limitations. Specifically, SBA requests comments on the following: whether SBA should limit the duration of Legacy HUBZone employee status to a certain number of years, and if so, how many years would be appropriate; whether individuals who were students when they resided in a HUBZone should be eligible for treatment as Legacy HUBZone Employees; whether Legacy Employees should be limited to full-time employees only; and whether an owner of the concern should be able to qualify as a Legacy HUBZone Employee. SBA is concerned that not imposing some ( print page 68290) restrictions on Legacy Employees could open the provision to abuse. The purpose of this provision is to allow HUBZone firms to retain employees who have managed to improve their position and move out of a HUBZone. This purpose is not relevant to many owners of HUBZones because they are not at risk of being fired for moving out of a HUBZone.

The proposed rule would revise § 126.200(e), which addresses the “attempt to maintain” requirement. The proposed rule would clarify when HUBZone firms must certify that they will attempt to maintain compliance with the 35% HUBZone residency requirement during the performance of a HUBZone contract. The rule would provide that firms must make this certification when they apply for HUBZone certification, at the time they complete their recertification, and at the time of offer for any HUBZone contract.

Similarly, the proposed rule would amend § 126.200(f) to provide that HUBZone firms must certify that they will comply with the applicable limitations on subcontracting requirements when they apply for HUBZone certification, and at the time they complete their annual recertification. Certified HUBZone small business concerns also agree to comply with the limitations on subcontracting requirements under FAR clause 52.219-14, Limitations on Subcontracting, by submitting an offeror for and executing a HUBZone contract.

Finally, the proposed rule would revise § 126.200(g) to clarify that neither a concern nor any of its owners may have an active exclusion in SAM at the time of application or at any time while the concern is HUBZone-certified.

The proposed rule would amend § 126.201 by rephrasing the language explaining the ownership requirements for HUBZone small business concerns. The current regulations provide: “An owner of a SBC seeking HUBZone certification or a qualified HUBZone SBC is a person who owns any legal or equitable interest in such SBC.” The proposed rule would rephrase this sentence to read: “For purposes of qualifying for HUBZone certification, SBA considers any person who owns any legal or equitable interest in a concern to be an owner of the concern.” This change is intended only to make this section clearer and easier to read, without changing the meaning or intent of the provision.

The proposed rule would revise § 126.204(a) to specify that a HUBZone firm can have affiliates, so long as the firm and its affiliates in the aggregate qualify as small in at least one NAICS code listed in the HUBZone firm's SAM profile. This clarification is necessary because the current regulation says only that the firm and its affiliates in the aggregate must be small—without specifying that the firms, together, must be small in at least one NAICS code listed in the HUBZone-certified firm's SAM profile.

The proposed rule would amend § 126.204(c) to clarify that SBA reviews the “totality of circumstances” when determining whether to aggregate the employees of affiliated companies for purposes of calculating a firm's compliance with the 35% HUBZone residency and principal office requirements. In addition, the proposed rule would add a new paragraph (c)(4) clarifying SBA's current policy that if firms are not considered affiliated for size purposes, their employees generally will not be aggregated for HUBZone purposes.

Sections 126.302 and 126.303 provide general guidance on applying to SBA to be certified as a HUBZone small business concern. Section 124.203 provides similar guidance for applying to the 8(a) BD program; sections 127.301 and 127.302 do so for the WOSB program and section 128.301 does the same for applying to the VetCert program. The current regulations for the 8(a) BD, HUBZone and WOSB programs require that an application must be electronically signed by a specified individual (by each individual claiming social and economic disadvantage status for the 8(a) BD program and by an officer of the concern who is authorized to represent the concern for the HUBZone and WOSB programs). This proposed rule would change that language to provide instead that the individual(s) upon whom eligibility is based take responsibility for the accuracy of all information submitted on behalf of the applicant. The proposed rule would also add similar language to § 128.301 for the VetCert program.

The proposed rule would amend § 126.304(e) to clarify the records that HUBZone participants must maintain to ensure continued eligibility. Specifically, the proposed rule would provide that HUBZone small business concerns must retain documentation related to any “Legacy HUBZone employees” in order to demonstrate that individuals being claimed as Legacy HUBZone employees meet the requirements ( i.e., 180 days of HUBZone residence after the firm's certification or recertification date, and uninterrupted employment).

The proposed rule would amend § 126.306 by adding a new paragraph (h) to make clear that the D/HUB's decision to approve or deny an application to the HUBZone program is the final agency decision. This has been SBA's long-standing policy. There is no reconsideration or appeal process because declined applicants are permitted to reapply to the HUBZone program 90 days after receiving the decline decision.

The proposed rule would revise § 126.309, which describes when a declined or decertified firm can re-apply for HUBZone certification. The proposed rule would keep the 90-day wait period for firms whose application has been declined, but would eliminate that wait period for firms that have been decertified. When the HUBZone regulations were first implemented, declined or decertified firms were required to wait one year to reapply to the HUBZone program. At that time, SBA chose the one-year period to give small businesses a reasonable period of time within which to make the changes or modifications that are necessary to enable them to qualify for the HUBZone program, and at the same time to allow SBA to administer the HUBZone program effectively with available resources. However, SBA found that in many cases, a small business only had to hire a few additional HUBZone residents to come back into compliance. SBA also found that after the 2010 census, many small businesses had principal offices in HUBZone areas that were expiring and some such businesses may be planning to move to newly-designated HUBZone areas. SBA found that it would not serve the purposes of the program to make such small businesses wait one year to reapply. Thus, in 2011, SBA reduced the wait period to ninety (90) calendar days, to encourage businesses to move into newly designated HUBZones and hire HUBZone residents, which are the two purposes of the statute. SBA also believed that it would create an incentive for small businesses that no longer meet the HUBZone program ( print page 68291) requirements to voluntarily decertify and then seek eligibility when they come back into compliance.

At the present time, the HUBZone portfolio is once again being significantly impacted by changes to the HUBZone Map caused by the decennial census. When the HUBZone Map was updated on July 1, 2023, many Redesignated Areas lost their HUBZone status, and thus many small businesses with principal offices in those Redesignated Areas have faced (or are facing) the decision to either relocate their principal office or withdraw from the program. Given how many small businesses are being affected by the expiration of the Redesignated Areas—whether as a result of its principal office no longer being located in a HUBZone or employees no longer residing in a HUBZone—SBA believes it is best to eliminate the waiting period that currently applies after decertification.

This rule proposes a corresponding change to § 126.803, to provide that a firm that is decertified for any reason (including based on a protest or due to voluntarily withdrawing) can reapply immediately after the decertification is effective.

In order to promote consistency across SBA's programs, the proposed rule would make similar changes in § 127.305 for the WOSB program and in § 128.305 for the VetCert program to eliminate the 90-day wait time to reapply for certification in those programs after it has been decertified.

The proposed rule would revise § 126.401, which explains what program examinations are. The proposed rule would provide that a program examination is an investigation by SBA officials, which verifies the accuracy of any certification made or information provided as part of the HUBZone application process, as part of the recertification process, or in connection with a HUBZone contract. The current regulation does not specify that program examinations may be conducted to verify the accuracy of certifications made in connection with HUBZone contracts. This proposed change would be necessary if SBA implemented the proposed changes requiring a HUBZone small business concern to meet the 35% HUBZone residency and principal office requirements on the date it submits an offer for a HUBZone contract. In light of this proposed requirement, proposed § 126.401 would provide that during a program examination, SBA “may verify that the concern met the program's eligibility requirements at the time of its application for certification, at the time of any recertification, or at the time of its offer for a HUBZone contract.”

The proposed rule would amend § 126.403(a) to clarify that a program examination may include a site visit. The current regulations describing program examinations provide that “SBA may conduct a program examination, or parts of an examination, at one or more of the concern's offices.” It is true that SBA may conduct a site visit to one or more of a HUBZone concern's offices as part of a program examination. However, site visits are just one potential facet of a program examination and not all program examinations include site visits.

The proposed rule would amend § 126.404 to clarify that where a firm is found ineligible pursuant to a program examination, SBA will decertify the firm by removing the firm's certification in DSBS for a period of 30 calendar days, during which time the firm is ineligible to submit offers for or be awarded HUBZone contracts. SBA may also identify such decertification actions on its website to ensure that relevant contracting officers are aware of any such decertification. Decertification in this instance is a statutory requirement under section 31(d)(6) of the Small Business Act. Prior to this rule, SBA has not formally removed firms' HUBZone status in DSBS during this 30-day period. However, SBA has determined that in order for the statutory requirement to be enforceable, SBA must remove a firm's certification in DSBS during the 30-day suspension period. In addition, the proposed rule would provide that the firm must provide written notice of the concern's ineligibility to the contracting officer for any pending HUBZone award. During this 30-day period, the firm may submit documentation showing that it was in fact eligible on its recertification date. If the concern failed to submit documentation sufficient to demonstrate its eligibility by the last day of the 30-day period, the concern would remain decertified. If SBA overturned its determination, SBA would reverse the firm's decertification and reinstate its certification.

The proposed rule would revise §§ 126.500 and 126.601 to eliminate the one-year certification rule and instead require firms to be eligible on the date of offer for HUBZone contracts and only recertify once every three years. Currently, the HUBZone rules require firms to annually recertify their HUBZone status to SBA. Under the current rules, once a firm annually recertifies its HUBZone status, it generally can submit offers for HUBZone contracts for one year without being required to meet the 35% HUBZone residency and principal office requirements at the time of offer. Thus, SBA's current regulations set one point in time—the date of certification or the certification anniversary date—as the time at which a firm must be eligible for a HUBZone contract. Under the current regulations, if a firm is eligible as of its certification or certification anniversary date, it remains eligible for HUBZone contracts for a period of one year from that date regardless of whether the firm falls out of compliance with the HUBZone eligibility requirements throughout the year. SBA believes that the current process can permit abuses that were not intended for the program. A firm could hire one or more individuals who reside in a HUBZone for four weeks prior to its application for certification and immediately dismiss those individuals from its employ after becoming certified and be eligible throughout the year for HUBZone contracts. Similarly, a firm could again re-hire one or more individuals who reside in a HUBZone for four weeks prior to its certification anniversary date and immediately release those individuals after the certification anniversary date and be eligible for additional HUBZone contracts for another year. SBA believes that that was not the intent of the program. Thus, proposed § 126.601(a) would require a firm to be both a certified HUBZone small business and one that continues to be eligible as of the date of its offer for a HUBZone contract.

In light of this change, the rule also proposes to amend § 126.500 to require firms to recertify to SBA every three years, rather than annually. SBA believes annual recertification is not necessary, and would impose undue burdens on HUBZone small businesses, if firms are also required to be eligible at the time they submit offers on any HUBZone contracts. Moreover, SBA believes that uniformity among its contracting programs is an important goal, and SBA's WOSB and VetCert programs require firms to be eligible at the time of offer for contracts and to recertify to SBA every three years. Thus, returning to triennial recertification, combined with the change to require HUBZone firms to be eligible on the date of offer for HUBZone contracts, would bring the HUBZone program ( print page 68292) more in line with SBA's other socioeconomic contracting programs.

The proposed rule would clarify that an offeror on a competitively awarded HUBZone contract need not be eligible on the date of award of such contract. Prior to 2020, SBA's regulations required eligibility for a competitively awarded HUBZone contract both at time of offer and time of award. That caused problems with the procurement process where a HUBZone employee that was counted on for HUBZone eligibility left the firm in the time between the firm's offer and the date of award. The firm could be in the process of hiring a new employee from a HUBZone but if it had not done so by the date of award the firm would be ineligible for award. SBA continues to believe that determining such a firm ineligible for award is inappropriate. There must be certainty to eligibility when a firm submits an offer. The proposed rule, however, would provide that certainty. As long as a firm is eligible as of the date of its offer for a competitively awarded HUBZone contract, it will be eligible for award. This is similar to the size requirement where a firm must also be small on the date of its offer but may grow to be other than small between the date of its offer and the date of award. However, the proposed rule would specify that there is an exception to this rule for HUBZone sole source awards, for which a firm must be HUBZone-certified at the time of award. SBA believes that sole source procurements require stricter eligibility rules. In order to be eligible for a sole source HUBZone award, a procuring activity must conclude that the firm receiving the award is the only certified HUBZone small business concern that is capable of performing the contract. That by itself is very restrictive, and SBA believes that eligibility should also be restrictive. SBA does not believe that Congress intended to allow a firm that no longer qualifies as a HUBZone small business concern prior to award to be elevated to a status as the only certified HUBZone small business concern that is capable of performing the contract. In addition, this change would align HUBZone sole source awards with how SBA treats sole source awards in the 8(a) BD program.

The proposed rule would clarify that an offeror under a competitive HUBZone contract must be identified as HUBZone-certified in DSBS when it submits its initial offer. SBA proposes to add this to clarify that for the HUBZone program, unlike the WOSB Program, a firm cannot submit an offer on HUBZone contract while its application is still pending. That is, a concern is only eligible to submit offers for HUBZone contracts after SBA has formally approved its application and updated DSBS (or successor system) showing that the concern is a certified HUBZone small business concern. In addition, the proposed rule would clarify that for a multiple award contract, where concerns are not required to submit price as part of the offer for the contract, an offeror must be identified as a certified HUBZone small business concern in DSBS (or successor system) and meet the HUBZone requirements in § 126.200 on the date of initial offer, which may not include price. This is consistent with SBA's size regulations at § 121.404(a)(1)(iv).

SBA has also found that the HUBZone Program goals are not sufficiently fulfilled by how the “attempt to maintain” requirement is currently being implemented. Under the current rules, a HUBZone firm can have less than 35% HUBZone residents at the time of its annual recertification if the firm is performing a HUBZone contract. This means that a firm being awarded HUBZone contracts in essence never has to demonstrate that it is employing at least 35% HUBZone residents. SBA believes this is contrary to the purpose of the HUBZone Program. SBA believes it would make more sense to give firms a specific “grace period” after they are awarded a HUBZone contract during which time they can take the necessary steps to hire enough HUBZone residents to get back up to 35% HUBZone residency. If a firm's recertification falls within this grace period, then such firm's recertification would require the firm to represent that it is “attempting to maintain” compliance with the 35% HUBZone residency requirement. After the grace period, then such firm would have to be back up to 35% HUBZone residency at the time of any recertification. This rule proposes that the grace period be 12 months following the award of a HUBZone contract. To implement this proposed change, proposed § 126.500(a)(1)(i) would provide that, in order to recertify, a HUBZone firm that did not receive a HUBZone contract during the year preceding its recertification date must represent that, at the time of its recertification, at least 35% of its employees reside in HUBZones and the concern's principal office is located in a HUBZone. Proposed § 126.500(a)(1)(ii), on the other hand, would provide that a HUBZone firm that was awarded a HUBZone contract during the year preceding its recertification date would have to represent that, at the time of its recertification, it is attempting to maintain compliance with the 35% HUBZone residency requirement and the concern's principal office is located in a HUBZone.

Proposed § 126.500(a)(2) would provide that a concern's recertification must be submitted within 90 calendar days before the triennial anniversary of its HUBZone certification date. This 90-day window mirrors the VetCert regulations and thus creates additional uniformity among SBA's programs.

Proposed § 126.500(a)(3) would provide that a firm that fails to recertify will be proposed for decertification. However, SBA is seeking comments on whether such firms should be decertified automatically within a certain timeframe (such as 30 days) of failing to recertify.

Proposed § 126.500(b) would explain that SBA will conduct a program examination of each certified HUBZone small business concern at least once every three years to ensure continued program eligibility, using a risk-based analysis. The proposed rule would further provide that SBA may conduct more frequent program examinations using a risk-based analysis to select which concerns are examined. This is SBA's current policy, and this rule would make these policies clearer.

The proposed rule would revise § 126.501 in its entirety. The proposed section would address a certified HUBZone small business concern's ongoing obligations to SBA (which is what this section addressed prior to the 2019 rule change). First, the proposed rule would provide that a certified HUBZone small business concern that acquires, is acquired by, or merges with another business entity must provide evidence to SBA, within 30 calendar days of the transaction becoming final, that the concern continues to meet the HUBZone eligibility requirements. The proposed section would provide that a concern that no longer meets the requirements may voluntarily withdraw from the program or it will be removed by SBA pursuant to program decertification procedures. This is SBA's current policy, but the current regulations only require a firm to notify SBA via email where it is involved in a merger or acquisition and do not explain what happens after such notification.

Second, proposed § 126.501(b) would provide that a certified HUBZone small business concern that is performing a HUBZone contract and fails to “attempt to maintain” the minimum employee HUBZone residency requirement must notify SBA notify SBA via email to ( print page 68293) [email protected] within 30 calendar days of such occurrence. A concern that cannot meet the requirement may voluntarily withdraw from the program or it will be removed by SBA pursuant to program decertification procedures.

The proposed rule would add a new paragraph (d) to § 126.503, clarifying that SBA will decertify a HUBZone small business concern that is debarred from federal contracting without first proposing the firm for decertification. This is merely a clarification of an existing policy. Once a firm has been debarred, it is ineligible for all federal contracts and subcontracts and thus there is no benefit to being HUBZone-certified.

The proposed rule would amend § 126.504(a) to add that SBA will remove a firm's HUBZone designation if the firm has been debarred from government contracting pursuant to the procedures in FAR 9.4. This change would be consistent with the addition of a new paragraph (d) to § 126.503, discussed above.

The proposed rule would revise § 126.504(c) by renumbering the introductory language as paragraph (c)(1), changing paragraph (c)(1) to paragraph (c)(2), and eliminating current paragraph (c)(2) as unnecessary. The proposed rule would then amend renumbered § 126.504(c)(1) by clarifying that a firm is ineligible to submit offers for HUBZone contracts at the time SBA decertifies the firm. The current regulations provide that a firm is ineligible when it is “removed as a certified HUBZone small business concern in DSBS.” However, there are occasional lags between SBA's decertification action and updates to DSBS, as well as potential errors in updates to DSBS. SBA may identify such decertification actions on its website to address the occasional lags.

The proposed rule would amend renumbered § 126.504(c)(2) by clarifying that a firm must be HUBZone-certified at the time of its initial offer for a HUBZone contract, and it must be able to demonstrate its compliance with the HUBZone requirements ( e.g., the 35% HUBZone residency requirement and the principal office requirement) as of the date of its offer. This provision would continue to provide that HUBZone eligibility is determined at the time of offer, and not at the time of award, but eligibility would no longer relate back to the firm's certification anniversary date.

The proposed rule would amend § 126.600 to clarify that qualifying joint ventures may be considered HUBZone small business concerns for HUBZone contracts and to clarify that the rules in Part 126 apply to HUBZone prime contracts, not subcontracts awarded to HUBZone small businesses. The proposed rule would add a new paragraph (e) clarifying that orders awarded to certified HUBZone small business concerns under set-aside Multiple Award Contracts are HUBZone contracts.

The proposed rule would amend the requirements relating to how a certified HUBZone small business concern “attempts to maintain” having at least 35% of its employees reside in a HUBZone during the performance of a HUBZone contract. Specifically, the proposed rule would revise § 126.602 to provide that a certified HUBZone small business concern that has received a HUBZone contract must be “attempting to maintain” the 35% HUBZone residency requirement (including by having at least 20% of its employees reside in a HUBZone) on the first certification anniversary date after being awarded a HUBZone contract and at least 35% of its employees reside in a HUBZone on each certification anniversary date thereafter. SBA does not believe that the 35% HUBZone residency requirement should be watered down to as low as 20% over the course of a firm's participation in the HUBZone program merely because a HUBZone small business concern received one or more HUBZone contracts. However, SBA also believes that it must give some meaning to the “attempt to maintain” statutory language, which is why allowing a firm to drop below the 35% residency requirement (but no lower than 20%) for a year makes sense to SBA. SBA believes that giving a firm an additional year to come back into compliance with the 35% residency requirement after being awarded a HUBZone contract is a good balance between the two statutory requirements. However, SBA requests comments on how to implement this requirement where a HUBZone firm receives multiple HUBZone awards in successive years.

The proposed rule would amend § 126.605 to clarify that this section describes circumstances under which a contracting officer is prohibited from soliciting a requirement as a HUBZone contract. The proposed rule changes the words “may not” to “shall not” to clarify that a contracting officer does not have discretion to award a HUBZone contract in those specified instances.

The proposed rule would amend § 126.612 by adding a new paragraph (f) providing that the awardee of a HUBZone sole source contract must be a certified HUBZone small business concern on the date of award. This has always been the policy for the 8(a) Business Development program ( see § 124.501(h)), and SBA is trying to make its socioeconomic programs as consistent as possible.

The proposed rule would amend § 126.613, which addresses the HUBZone price evaluation preference (PEP), to clarify how the HUBZone PEP should be applied. The proposed rule would revise paragraph (a) and the examples. The proposed rule would provide that to apply the HUBZone PEP, a contracting officer must add 10% to the offer of the otherwise successful large business offeror. Then, if the certified HUBZone small business concern's offer is lower than that of the large business after the HUBZone PEP is applied, the certified HUBZone small business concern must be deemed the lowest-priced offeror. The proposed rule would add a sentence specifying that the HUBZone price evaluation preference does not apply where the initial lowest responsive and responsible offeror is a small business concern.

The proposed rule would add clarifying language to Example 1 explaining that a non-HUBZone small business concern is not affected by the application of the HUBZone PEP where such non-HUBZone small business is not the lowest offeror prior to the application of the preference. This is because the HUBZone PEP is intended neither to harm nor to benefit a non-HUBZone small business.

The proposed rule would amend Example 2 by specifying that, in the example, after the application of the HUBZone PEP, the HUBZone small business concern's offer is not lower than the offer of the large business ( i.e., $103 is not lower than $102.3 ($93 × 110%)).

The proposed rule would amend Example 3 to clarify that a contracting officer should not apply the HUBZone PEP where the lowest, responsive, responsible offeror is a small business concern, even if a large business concern submitted an offer. ( print page 68294)

In addition, the proposed rule would clarify how the PEP should be applied to a procurement using trade off procedures. The proposed rule would provide that for a procurement using trade off procedures, the CO must first apply the 10% price preference to the offers of any large businesses and then determine which offeror represents the best value to the Government, in accordance with the terms of the solicitation. Where, after considering the price adjustment, the total evaluation points received by a certified HUBZone small business concern is equal to or greater than the total evaluation points received by a large business, award shall be made to the certified HUBZone small business concern.

The proposed rule would amend § 126.615 by adding a reference to § 125.9, to clarify that large businesses may participate in HUBZone procurements by serving as SBA-approved mentors under SBA's mentor-protégé program, and by correcting the cross-reference to the limitations on subcontracting.

The proposed rule would amend § 126.616, which describes the circumstances under which a joint venture can be awarded a HUBZone contract. The proposed rule would delete language from current § 126.616(a)(1) stating that a “joint venture itself need not be a certified HUBZone small business concern.” SBA proposes to delete this language because it implies that a joint venture could be HUBZone-certified, when in fact the HUBZone program does not certify joint ventures under any circumstances. Instead, proposed § 126.616(a)(1) would clarify that SBA does not certify HUBZone joint ventures, but provide that a joint venture should be designated as a HUBZone joint venture in SAM (or successor system), with the HUBZone-certified joint venture partner identified. The proposed rule would add a new paragraph (k) to provide that a procuring agency may only receive HUBZone credit for an award to a HUBZone joint venture where the joint venture complies with the requirements in § 126.616.

As noted above, this rule proposes to move recertification requirements for size and socioeconomic status to a new § 125.12. A revised § 126.12 would refer to the requirements set forth in§ 125.12 as applying to recertifications of HUBZone status.

The proposed rule would amend § 126.701 by removing the words “these subcontracting percentages” in the section heading and adding in their place the words “the limitations on subcontracting” to clarify the content of the section.

The proposed rule would amend § 126.800 by removing the paragraph subheadings and incorporating them into the text of the regulation, to make the section more readable. In addition, the proposed rule would clarify that interested parties may protest a HUBZone joint venture offeror's eligibility for award of a HUBZone contract. Finally, the proposed rule would add a new paragraph (c) providing that for contracts other than HUBZone contracts, SBA may protest an apparent successful offeror's status as a certified HUBZone small business concern. SBA believes that where there is evidence that the prospective awardee does not meet the HUBZone requirements, the agency needs to be able to protest a firm's HUBZone status, even for a non-HUBZone award. This would prevent an agency from receiving HUBZone credit where the awardee is not eligible for the program.

In response to the change made to § 126.601(a) requiring a HUBZone small business to be eligible for a HUBZone contract as of the date of its initial offer including price, the proposed rule would first align the protest procedures to recognize that the date of offer would be the relevant date for protesting a HUBZone small business concern's eligibility for award of a HUBZone contract.

SBA proposes to amend § 126.803 by revising paragraph (a), which explains the date that will be used to determine a firm's HUBZone eligibility if it is the subject of a HUBZone status protest. As explained above, this proposed rule would require HUBZone firms to be eligible at the time of offer for competitively awarded HUBZone contracts. Consistent with this proposed change, proposed § 126.803(a) would provide that for all HUBZone contracts other than HUBZone sole source awards, SBA shall determine a protested firm's HUBZone eligibility as of the date of its initial offer that includes price. For HUBZone sole source awards, SBA would determine a protested firm's HUBZone eligibility as of the date of award.

SBA also proposes to redesignate paragraphs (c), (d), and (e) as paragraphs (d), (e), and (f), and to add a new paragraph (c) to § 126.803. Proposed § 126.803(c) would provide that the burden of proof to demonstrate eligibility is on the protested concern. The section would explain that if a concern does not provide information requested by SBA within the allotted time provided, or if it submits incomplete information, SBA may draw an adverse inference and presume that the information that the applicant failed to provide would demonstrate ineligibility and sustain the protest on that basis. These policies are explained in SBA's protest notification letters, and SBA believes it makes sense to add them to the protest regulations.

The proposed rule would amend § 126.900 by adding a new paragraph (e)(4) providing that if SBA discovers that false or misleading information has been knowingly submitted by a certified small business concern in order to obtain or maintain HUBZone certification, the D/HUB will propose the firm for decertification.

In order to be eligible for the 8(a) BD program, SBA requires socially and economically disadvantaged individuals to reside in the United States. See 13 CFR 124.101 . There currently is not a similar requirement for the WOSB or VetCert programs. SBA believes that qualifying individuals should reside in the United States to more adequately advance the purposes of the programs. The proposed rule would add a United States residency requirement for qualifying individuals in the WOSB and VetCert programs.

Section 127.400 provides guidance as to how a concern can maintain its WOSB or EDWOSB certification. Current § 127.400(b) specifies that a concern must either request a program examination from SBA or notify SBA that it has requested a program examination from a third-party certifier no later than 30 days prior to its certification anniversary. In order to provide consistency between the programs, the proposed rule would state that a concern must either recertify with SBA or notify SBA that it has completed a program examination from a third party certifier in the 90 calendar days prior to its certification anniversary. The ( print page 68295) proposed rule would also revise the example set forth in the regulations to take into account the change from 30 days to 90 days.

Section 134.1104 sets forth the time limits a VOSB or SDVOSB must appeal an adverse determination finding it ineligible for the VetCert program to SBA's Office of Hearings and Appeals (OHA). Currently, § 134.1104 requires an appeal to be filed within 10 business days of receipt of the denial. When an application for the 8(a) BD program is denied, a firm has 45 days from the date it receives the Agency decision to file an appeal with OHA. See 13 CFR 124.206(b) . SBA is in the process of establishing a uniform application processing system. That system will allow a firm to simultaneously apply for multiple certifications for which it believes it is eligible. If a firm applied for 8(a) and VetCert certification at the same time and was denied for both programs, the current regulations would require the firm to appeal its VetCert denial withing 10 days while not being required to file its 8(a) eligibility appeal for 45 days. SBA believes that may be confusing to affected applicants and that there should be consistency in the appeal process. As such, this proposed rule would change the time to file an appeal for the VetCert program to 45 days.

Executive Order 12866 , “Regulatory Planning and Review,” directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 , “Improving Regulation and Regulatory Review,” emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Order 14094 , “Modernizing Regulatory Review,” amends section 3(f) of Executive Order 12866 and supplements and reaffirms the principles, structures and definitions governing contemporary regulatory review established in Executive Order 12866 and Executive Order 13563 . The OMB Office of Information and Regulatory Affairs (OIRA) has determined that this rule is a significant regulatory action and, therefore, it was reviewed under subsection 6(b) of E.O. 12866 .

This regulatory action clarifies and streamlines SBA's regulations governing the HUBZone Program and other contracting assistance programs. In 2019, SBA published a comprehensive revision to the HUBZone Program regulations, which implemented changes intended to make these regulations easier to understand and implement. This proposed rule is intended to further clarify and improve policies surrounding some of those changes to ensure that the HUBZone program fulfills its statutory purpose. In addition, SBA has heard from small businesses of a desire for consistency among its contracting assistance programs in order to relieve burdens associated with compliance with multiple programs. As a result, the proposed rule would make several improvements to create uniformity among the programs, including deleting the program-specific recertification requirements contained separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert and moving them to a new section that would cover all size and status recertification requirements.

The proposed rule benefits program participants by reducing burdens and increasing consistency with other contracting programs while changing or adding some compliance requirements that strengthen the program's impact and reduce the potential for business policies and practices that are contrary to the goals of the HUBZone program. The reduction of burdens includes the decrease in the time of proof of residence for employees, removal of the 90-day wait period for reapplication after decertification, revisions to the part of the rule that addresses Governor-designated covered areas, a change in the negative-control rule in SBA's affiliation rule, deletion of program-specific requirements for certification, and triennial instead of annual recertification. Additionally, the proposed rule adds a telework provision. Proposed compliance requirements include limits on the number of Legacy Employees, revised requirements for the use of the “attempt to maintain” statutory language, possible minimum thresholds for number of hours worked, and proof of eligibility at the time of offer of a HUBZone contract. These proposed compliance measures are consistent with the program's goal of promotion of growth and impact of small businesses in historically underutilized areas and SBA believes, as outlined below, that they are not substantial burdens.

The decrease from 180 days to 90 days for proof of employees' residency allows for firms to enter the HUBZone program more quickly and increases opportunities for newly-hired employees. Both of these results increase accessibility of the program's opportunities. Removal of the 90-day wait period for decertified firms also promotes the program's accessibility because SBA has found that a shorter wait period is consistent with firms' ability to qualify or return to compliance by hiring HUBZone residents or by moving to a newly-designated HUBZone.

The restatement of § 126.104 clarifies existing policy on Governor-designated covered areas, including the condition for annual petitions and a statement of no need for SBA's approval of previously designated covered areas. This restatement decreases uncertainty for firms that participate or plan to participate in the program. The restatement also authorizes the Associate Administrator for Government Contracting and Business Development, or designee, instead of the Administrator to approve covered areas, which SBA believes would reduce time to approve a petition and facilitate entry into the program.

Amendments to regulations on affiliation will remove inconsistencies with other programs' regulations. The benefit of the amendments is more certainty on measures that minority-share investors can include to protect their investments without a finding of control. This proposed rule further reduces uncertainty in this matter by applying the same language to the 8(a) BD, WOSB and VetCert programs. SBA expects the changes in regulations on affiliation and control and increased consistency among programs to improve the environment for access to capital for small businesses in contracting assistance programs.

The proposed rule returns the HUBZone program to triennial recertification and deletes program-specific recertification requirements. Both of these changes alleviate the burden associated with recertification. ( print page 68296) With recertification taking about an hour to complete, SBA estimates that the change to triennial recertification will result in an annual reduction in the time burden from recertification of approximately 2,468 hours and about $326,911 in annual savings. [ 4 ] SBA has seen a downward trend in the number of HUBZone firms over the years, with lateness in annual recertification as one reason for the trend, so a reduction in this recertification burden may increase the number of HUBZone program participants and, consequently, the savings from this change in the future, in addition to the wider economic benefits generated by more HUBZone firms in communities. Deletion of program-specific recertification requirements would also reduce time in recertification. In 2023, SBA sampled several years of data to estimate that about 10% of the firms in the HUBZone program were also in the WOSB program and 15% in the 8(a) program. The eliminated recertification procedures from uniform certification could reduce the time burden by an estimated 617 hours and generate an additional $81,728 in annual savings. [ 5 ]

The proposed rule recognizes the increased importance of telework and allows small businesses with 100 percent of its employees to participate in the HUBZone program but with the condition that at least 51 percent of the employees work from HUBZone locations. This provision enables program participants to use the benefits of telework for recruitment and flexibility while addressing the program's goals of stimulating economic activity in HUBZone areas.

The proposed rule revises § 126.200(d)(3) to allow HUBZone firms to retain employees who have move out of a HUBZone but proposes a limitation on the number of these Legacy HUBZone Employees. This is an attempt to balance the needs of employees who move for personal reasons or for professional development with the aims of the program to promote business activity in specific areas. The limitation is a potential source of burden on small business entities and SBA is seeking comments on aspects of limiting the number of Legacy Employees.

SBA is also adjusting the threshold of 20 percent of employees for “attempt to maintain” currently in § 126.500(a)(2) with 35 percent. This increased threshold is a stronger standard but the procedures for demonstrating compliance are not different. Any resulting costs should be balanced against SBA's assessment that HUBZone goals are not sufficiently fulfilled by implementation of the current requirement of 20 percent.

Currently, § 126.103 specifies that an individual who works 40 hours in a four-week period is an employee. SBA proposes to increase the number of hours worked to 80 but seeks comments on whether this level is appropriate. This proposal is a revised and stricter compliance requirement but is one that SBA believes better promotes the purpose of the program and the need for a firm's legitimate presence in the HUBZone area. SBA expects that the increase in hours of gainful employment would be matched with increased output and therefore the additional hours would not impose a burden on employers. Recognizing some employers' and employees' needs for fewer hours per period, SBA seeks comments on a minimum number of hours for some individuals.

This rule proposes to require any certified HUBZone small business to be eligible as of the date of offer for any HUBZone contract. In Federal Procurement Data System (FPDS) data from previous years, approximately 2,100 new HUBZone contracts were awarded in a fiscal year. SBA estimates it takes approximately 1 hour for a firm to gather proof that it is eligible at the time of offer. Thus, this proposed rule will increase the burden on HUBZone small business concerns by approximately 2,100 hours for an estimated annual cost of $278,166. [ 6 ] SBA notes that the number of firms in the program has decreased over the past few years and this number of 2,100 may therefore be too high. SBA also notes that a specific small business entity incurs this burden only when a contract is offered and that, in the aggregate, the burden is balanced by the benefits of consistency of this provision with other contracting programs and maintenance of standards for the integrity of the HUBZone program.

The proposed changes clarify and streamline regulations and increase consistency with other contracting programs. Many of the benefits are not quantifiable, but SBA estimates annual savings of about $408,639 from reduced frequency of recertification. Benefits from the proposed changes regarding affiliation and control reduce uncertainty for investors and may therefore have a significant impact on access to capital. The rule contains measures that introduce or strengthen some compliance requirements but these are balanced by the need to maintain the goals and integrity of the program. The one quantifiable burden noted in these proposed compliance measures is proof of eligibility at the time of offer and this is a cost only when the benefit of the offer is present.

SBA considered alternatives to each of the significant changes made by this rule. Instead of requiring HUBZone firms to recertify every three years and be eligible at the time of offer, SBA considered maintaining the current requirement where annual recertification allows a concern to seek and be eligible for HUBZone contracts for a year. However, SBA has found that the annual recertification requirement does not fulfill the purposes of the HUBZone program as effectively as requiring firms to be eligible at the time of offer for HUBZone contracts. Moreover, SBA believes that uniformity among its contracting programs is an important goal, and returning to triennial recertification and eligibility determinations based on the date of offer would bring the HUBZone program much more in line with SBA's other small business and socioeconomic contracting programs.

This regulatory action is needed to clarify and improve SBA's regulations governing the HUBZone Program and SBA's other socioeconomic contracting programs. In 2019, SBA published a ( print page 68297) comprehensive revision to the HUBZone Program regulations, which implemented changes intended to make the HUBZone Program more efficient and effective. This proposed rule is intended to clarify and improve policies surrounding some of those changes. The clarifications and improvements are needed to ensure that the rules governing the HUBZone program fulfill its statutory purpose. In addition, SBA has heard from the small business community that improvements are needed to make its socioeconomic contracting programs more uniform, in order to relieve burdens associated with compliance with multiple programs. As a result, the proposed rule would make several improvements to create uniformity among the programs, including deleting the program specific recertification requirements contained separately in SBA's size, 8(a) BD, HUBZone, WOSB, and VetCert and moving them to a new section that would cover all size and status recertification requirements.

For the purposes of Executive Order 13132 , Federalism, SBA has determined that this rule would not have substantial, direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, for the purpose of Executive Order 13132 , Federalism, SBA has determined that this rule has no federalism implications warranting preparation of a federalism assessment.

This rule does not impose additional reporting or recordkeeping requirements under the Paperwork Reduction Act, 44 U.S.C. Chapter 35 .

In 2019, SBA revised its regulations to give contracting officers discretion to request information demonstrating compliance with the limitations on subcontracting requirements. See 84 FR 65647 (Nov. 29, 2019). In conjunction with this revision, SBA requested an Information Collection Review by OMB (Limitations on Subcontracting Reporting, OMB Control Number 3245-0400). OMB approved the Information Collection. The proposed rule would not alter the contracting officer's discretion to require a contractor to demonstrate its compliance with the limitations on subcontracting at any time during performance and upon completion of a contract. The estimated number of respondents, burden hours, and costs remain the same as that identified by SBA in the previous Information Collection. As such, SBA believes this provision is covered by its existing Information Collection, Limitations on Subcontracting Reporting.

According to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601 , when an agency issues a rulemaking, it must prepare a regulatory flexibility analysis to address the impact of the rule on small entities. However, section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an analysis, if the rulemaking is not expected to have a significant economic impact on a substantial number of small entities. The RFA defines “small entity” to include “small businesses,” “small organizations,” and “small governmental jurisdictions.” This proposed rule concerns various aspects of SBA's HUBZone program, as well as its size, 8(a) BD, WOSB, and VetCert programs. As such, the rule relates to small businesses but would not affect “small organizations” or “small governmental jurisdictions.”

The proposed changes clarify and streamline regulations and increase consistency with other contracting programs. Many of the benefits are not quantifiable, but SBA estimates annual savings of about $408,639 from reduced frequency of HUBZone recertification. There are approximately 5,000 small businesses that are listed as certified HUBZone small businesses in DSBS, and under the proposed rule, these firms would only need to recertify every three years, rather than every year. Benefits from the proposed changes regarding affiliation and control reduce uncertainty for investors and may therefore improve access to capital. The rule contains measures that introduce or strengthen some compliance requirements, but these are balanced by the need to maintain the goals and integrity of the program. The one quantifiable burden noted in these proposed compliance measures is proof of HUBZone eligibility at the time of offer and this is a cost only when the benefit of the offer is present. Moreover, this burden is counterweighed by the benefit of making the HUBZone program more consistent with SBA's other socioeconomic contracting programs, which decreases the amount of regulations that small businesses must learn and understand in order to participate in SBA's programs. The other changes that make the programs more consistent, such as consolidating the regulations related to recertification of size and status, only serve to benefit the small businesses that participate in these programs. Based on the foregoing, SBA does not believe that the proposed amendments would have a disparate impact on small businesses or would impose any additional significant costs. For the reasons discussed, SBA certifies that this proposed rule would not have a significant economic impact on a substantial number of small entities.

Administrative practice and procedure
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Administrative practice and procedure; Claims Confidential business information; Equal access to justice; Equal employment opportunity; Lawyers; Organization and function (Government agencies)

Accordingly, for the reasons stated in the preamble, SBA proposes to amend 13 CFR parts 121 , 124 , 125 , 126 , 127 , 128 , and 134 as follows:

1. The authority citation for part 121 continues to read as follows:

( print page 68298) Authority: 15 U.S.C. 632 , 634(b)(6) , 636(a)(36) , 662 , and 694a(9) .

2. Amend § 121.103 by revising paragraphs (a)(3), (h)(3) introductory text, and (h)(3)(i), and adding a new adding paragraph (h)(3)(v), to read as follows:

(3) Control may be affirmative or negative. Negative control includes, but is not limited to, instances where a minority shareholder has the ability, under the concern's charter, by-laws, or shareholder's agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders. However, SBA will not find that a minority shareholder has negative control where such minority shareholder has the authority to block action by the board of directors or shareholders regarding the following extraordinary circumstances:

(i) Adding a new equity stakeholder;

(ii) Dissolution of the company;

(iii) Sale of the company or all assets of the company;

(iv) The merger of the company;

(v) The company declaring bankruptcy; and

(vi) Amendment of the company's corporate governance documents to remove the shareholder's authority to block any of (1) through (5).

(3) Ostensible subcontractors and unduly reliant managing joint venture partners. (i) An offeror is ineligible as a small business concern, an 8(a) small business concern, a certified HUBZone small business concern, a WOSB/EDWOSB concern, or a VOSB/SDVOSB concern where SBA determines there to be an ostensible subcontractor. An ostensible subcontractor is a subcontractor that is not a similarly situated entity, as that term is defined in § 125.1 of this chapter, and performs primary and vital requirements of a contract, or of an order, or is a subcontractor upon which the prime contractor is unusually reliant.

(v) A joint venture offeror is ineligible as a small business concern, an 8(a) small business concern, a certified HUBZone small business concern, a WOSB/EDWOSB concern, or a VO/SDVO small business concern where SBA determines that the managing joint venture partner will not perform 40% of the work to be performed by the joint venture, where a joint venture partner that is not similarly situated to the managing venturer performs primary and vital requirements of a contract, or of an order, or where the managing venturer is unusually reliant on such a joint venture partner.

3. Amend § 121.104 by revising paragraph (a)(1) to read as follows:

(1) SBA will consider a concern's Federal income tax return and any amendments filed with the IRS on or before the date of self-certification to determine the size status of the concern. SBA may also consider other relevant information where it appears that the tax return does not properly capture a concern's total revenue.

4. Revise § 121.404 to read as follows:

(a) General. A concern, including its affiliates, must qualify as small under the NAICS code assigned to a contract as of the date the concern submits a written self-certification that it is small to the procuring activity as part of its initial offer or response which includes price. Once awarded a contract as a small business, a firm is generally considered to be a small business throughout the life of that contract.

(b) Multiple Award Contracts. (1) If a single NAICS code is assigned to a multiple award contract as set forth in § 121.402(c)(1)(i), SBA determines size status for the underlying multiple award contract as of the date a business concern submits its initial offer (or other formal response to a solicitation), which includes price, for the contract based upon the size standard set forth in the solicitation for the multiple award contract.

(2) When multiple NAICS codes are assigned to a multiple award contract as set forth in § 121.402(c)(1)(ii), SBA determines size status for the underlying multiple award contract for each discrete category for which an offer is submitted, by applying the size standard corresponding to each discrete category, as of the date a business concern submits its initial offer which includes price for the contract.

(3) Where concerns are not required to submit price as part of the initial offer for a multiple award contract, SBA determines size status for the underlying multiple award contract as of the date a business concern submits its initial offer for the contract, which may not include price.

(c) Orders and Agreements Established Against Multiple Award Contracts. (1) Unrestricted Contracts. Where an order is set-aside for small business under an unrestricted multiple award contract, SBA determines size status for each order placed against the multiple award contract as of the date a business concern submits its initial offer (or other formal response to a solicitation), which includes price, for each order.

(2) Set-Aside or Reserved Contracts. Where an order is issued under a multiple award contract that itself was set aside or reserved for small business ( i.e., small business set-aside, 8(a) small business, service-disabled veteran-owned small business, HUBZone small business, or women-owned/economically-disadvantaged women-owned small business), SBA determines size status as of the date a business concern submits its initial offer, which includes price, for the set-aside or reserved multiple award contract, unless a contracting officer requests size recertification with respect to a specific order.

(i) Where a contracting officer requests size recertification with respect to a specific order, size is determined as of the date the business concern submits its initial offer (or other formal response to a solicitation), which includes price, for the order.

(ii) Where a contracting officer requests size recertification with respect to a specific order, size is determined only with respect to that order. Where a contract holder has grown to be other than small and cannot recertify as small for a specific order for which a contracting officer requested recertification, it may continue to qualify as small for other orders issued under the contract where a contracting officer does not request recertification.

(3) Agreements. With respect to agreements established under FAR part 13, size is determined as of the date the business concern submits its initial offer, which includes price, for the agreement. Because an agreement is not a contract, the concern must also qualify as small as of the date the concern submits of its initial offer, which includes price, for each order issued pursuant to the agreement to be considered small for the order.

(4) Exceptions. (i) For orders or BPAs to be placed against the GSA Federal Supply Schedule (FSS) Multiple Award Schedule (MAS) contract, size is determined as of the date the business concern submits its initial offer, which includes price, for the GSA FSS MAS contract. ( print page 68299)

(ii) For 8(a) sole source orders issued under a multiple award contract, size is determined in accordance with § 124.503(i)(1)(iv) of this chapter, as of the date the order is offered to the 8(a) BD program, regardless of whether the multiple award contract is unrestricted, set-aside, or the GSA FSS MAS contract.

(iii) Size is determined on the date of recertification when a recertification is required pursuant to §§ 125.12(a) and (b) of this chapter, or on the date of initial offer which includes price if requested by a contracting officer pursuant to § 125.12(c). This exception applies to all provisions of paragraphs 121.404(a), (b), (c), and (d).

(d) Eligibility for SBA programs. A concern applying to be certified as a Participant in SBA's 8(a) Business Development program (under part 124, subpart A, of this chapter), as a HUBZone small business concern (under part 126 of this chapter), as a women-owned small business concern (under part 127 of this chapter), or as a service-disabled veteran-owned small business concern (under part 128 of this chapter) must qualify as a small business as of the date of its application and, where applicable, the date the SBA program office requests a formal size determination in connection with a concern that otherwise appears eligible for program certification. For the 8(a) Business Development program, a concern must qualify as small under the size standard corresponding to its primary industry classification. For all other certification programs, a concern must qualify as small under the size standard corresponding to any NAICS code listed in its SAM profile. SBA will accept a concern's size representation in SAM, or successor system, unless there is evidence indicating that the concern is other than small. SBA will request a formal size determination pursuant to § 121.1001(b)(8) where any information it possesses calls into question the SAM.gov size representation.

(e) Certificates of competency. The size status of an applicant for a Certificate of Competency (COC) relating to an unrestricted procurement is determined as of the date of the concern's application for the COC.

(f) Nonmanufacturer rule, ostensible subcontractor rule, and joint venture agreements. Compliance with the nonmanufacturer rule set forth in § 121.406(b)(1), the ostensible subcontractor rule set forth in § 121.103(h)(3), and the joint venture agreement requirements in §§ 124.513(c) and (d), §§ 126.616(c) and (d), § 127.506(c) and (d), and §§ 125.8(b) and (c) of this chapter, as appropriate, is determined as of the date of the final proposal revision for negotiated acquisitions and final bid for sealed bidding.

(g) Subcontracting. For subcontracting purposes, a concern must qualify as small as of the date that it certifies that it is small for the subcontract. The applicable size standard is that which is set forth in § 121.410 and which is in effect at the time the concern self-certifies that it is small for the subcontract. A prime contractor may rely on the self-certification of a subcontractor provided it does not have a reason to doubt the concern's self-certification.

(h) Two-step procurements. For purposes of architect-engineering, design/build or two-step sealed bidding procurements, a concern must qualify as small as of the date that it certifies that it is small as part of its initial bid or proposal (which may or may not include price).

(i) Recertification. See § 125.12 for information on recertification of size and status, and the effect of recertification. None of the exceptions set forth in paragraph (c)(4) of this section have an effect or serve as an exception to whether recertification is required under § 125.12.

(j) Follow-on contracts. A follow-on or renewal contract is a new contracting action. As such, size is determined as of the date the concern submits a written self-certification that it is small to the procuring agency as part of its initial offer including price for the follow-on or renewal contract.

5. Amend § 121.702 by revising paragraph (c)(7) to read as follows:

(7) Affiliation based on the ostensible subcontractor rule. A concern with an other than small ostensible subcontractor cannot be considered a small business concern for SBIR and STTR awards. An ostensible subcontractor is a subcontractor or subgrantee that performs primary and vital requirements of a funding agreement ( i.e., those requirements associated with the principal purpose of the funding agreement), or a subcontractor or subgrantee upon which the concern is unusually reliant.

(i) All aspects of the relationship between the concern and the subcontractor are considered, including, but not limited to, the terms of the proposal (such as management, technical responsibilities, and the percentage of subcontracted work) and agreements between the concern and subcontractor or subgrantee (such as bonding assistance or the teaming agreement).

(ii) To determine whether a subcontractor performs primary and vital requirements of a funding agreement, SBA will also consider whether the concern's proposal complies with the performance requirements of the SBIR or STTR program.

(iii) The prime and any small business ostensible subcontractor both must comply individually with the ownership and control requirements in paragraphs (a) and (b) of this section, as applicable.

6. Amend § 121.1001 by:

a. Adding paragraph (b)(2)(iii);

b. Redesignating paragraphs (b)(12) and (b)(13) as paragraphs (b)(14) and (b)(15), respectively; and

c. Adding new paragraphs (b)(12) and (b)(13).

The revision and additions read as follows:

(iii) Where SBA initially verified the eligibility of an 8(a) Participant for the award of an 8(a) contract but subsequently receives specific information that the Participant may be other than small and consequently ineligible, the Associate Administrator for Business Development or the Associate General Counsel for Procurement Law may request a formal size determination.

(12) In connection with a size recertification relating to a contract required by § 125.12 of this chapter, the contracting officer, the SBA program manager relating to the contract at issue ( i.e., the Director of Government Contracting, the Associate Administrator for Business Development, or the Director of HUBZone, as appropriate), or the Associate General Counsel for Procurement Law may request a formal size determination.

(13) In connection with a size recertification relating to a multiple award contract required by § 125.12 of this chapter, any contract holder on that multiple award contract may also request a formal size determination concerning a recertifying concern's status as a small business.

(i) A request for a formal size determination made by another contract ( print page 68300) holder on a multiple award contract must be sufficiently specific to provide reasonable notice as to the grounds upon which the recertifying concern's size is questioned. Some basis for the belief or allegation that the recertifying concern does not continue to qualify as small must be given.

(ii) SBA will dismiss as not sufficiently specific any request for a formal size determination alleging merely that the recertifying concern is not small or is affiliated with unnamed other concerns.

7. Amend § 121.1010 by revising paragraph (b) to read as follows:

(b) Recertification will not be required nor will the prohibition against future self-certification apply if the adverse SBA size determination is based solely on a finding of affiliation limited to a particular Government procurement or property sale, such as an ostensible subcontracting relationship or non-compliance with the nonmanufacturer rule.

8. The authority citation for part 124 continues to read as follows:

Authority: 15 U.S.C. 634(b)(6) , 636(j) , 637(a) , 637(d) , 644 , 42 U.S.C. 9815 ; and Pub. L. 99-661, 100 Stat. 3816; Sec. 1207, Pub. L. 100-656, 102 Stat. 3853; Pub. L. 101-37, 103 Stat. 70; Pub. L. 101-574, 104 Stat. 2814; Sec. 8021, Pub. L. 108-87 , 117 Stat. 1054; and Sec. 330, Pub. L. 116-260 .

9. Amend § 124.3 by revising the definition of “Community Development Corporation or CDC” to read as follows:

Community Development Corporation or CDC means a nonprofit organization responsible to residents of the area it serves which has received financial assistance under 42 U.S.C. 9805 , et seq. or has received a letter from the Department of Health and Human Services affirming that it has received assistance under a successor program to that authorized by 42 U.S.C. 9805 .

10. Remove § 124.4.

11. Amend § 124.102 by adding the following sentence to the end of paragraph (a)(1) to read as follows:

(1) * * * In determining whether a concern applying to be certified for the 8(a) BD program qualifies as a small business concern under the size standard corresponding to its primary industry classification, SBA will accept the concern's size representation in the System for Award Management ( SAM.gov ), or successor system, unless there is evidence indicating that the concern is other than small. SBA will request a formal size determination pursuant to § 121.1001(b)(8) of this chapter where any information it possesses calls into question the concern's SAM.gov size representation.

12. Amend § 124.105 by:

a. Revising paragraph (b);

b. Revising paragraph (f)(1);

c. Removing the words “10 percent” wherever they appear in paragraph (h)(1) and adding in their place the words “20 percent”;

d. Removing the words “20 percent” in paragraph (h)(1) and adding in their place the words “30 percent”; and

e. Revising paragraphs (h)(2), (i)(2), and (k).

The revisions read as follows:

(b) Ownership of a partnership. In the case of a concern which is a partnership, one or more individuals determined by SBA to be socially and economically disadvantaged must serve as general partners, with control over all partnership decisions. At least 51 percent of every class of partnership interest must be unconditionally owned by one or more individuals determined by SBA to be socially and economically disadvantaged. The ownership must be reflected in the concern's partnership agreement.

(1) At least 51 percent of any distribution of profits paid to the owners of a corporation, partnership, or limited liability company concern, and a disadvantaged individual's ability to share in the profits of the concern must be commensurate with the extent of his or her ownership interest in that concern;

(2) A non-Participant business concern in the same or similar line of business or a principal of such concern may generally not own more than a 20 percent interest in an 8(a) Participant that is in the developmental stage or more than a 30 percent interest in an 8(a) Participant in the transitional stage of the program, except that a business concern approved by SBA to be a mentor pursuant to § 125.9 of this chapter may own up to 40 percent of its 8(a) Participant protégé as set forth in § 125.9(d)(2), whether or not that concern is in the same or similar line of business as the Participant.

(2) (i) Prior approval by the AA/BD is not needed where:

(A) All non-disadvantaged individual (or entity) owners involved in the change of ownership own no more than a 30 percent interest in the concern both before and after the transaction;

(B) The transfer results from the death or incapacity due to a serious, long-term illness or injury of a disadvantaged principal;

(C) The disadvantaged individual or entity in control of the Participant will increase the percentage of its ownership interest; or

(D) The Participant has never received an 8(a) contract.

(ii) In determining whether a non-disadvantaged individual involved in a change of ownership has more than a 30 percent interest in the concern, SBA will aggregate the interests of all immediate family members as set forth in § 124.3, as well as any individuals who are affiliated based on an identity of interest under § 121.103(f).

(iii) Where prior approval is not required, the concern must notify SBA within 60 days of such a change in ownership, or before it submits an offer for an 8(a) contract, whichever occurs first.

Example 1 to paragraph (i)(2). Disadvantaged individual A owns 90% of 8(a) Participant X; non-disadvantaged individual B owns 10% of X. In order to raise additional capital, X seeks to change its ownership structure such that A would own 75%, B would own 10% and C would own 15%. X can accomplish this change in ownership without prior SBA approval. Non-disadvantaged owner B is not involved in the transaction and non-disadvantaged individual C owns less than 30% of X both before and after the transaction.

Example 2 to paragraph (i)(2). Disadvantaged individual C owns 60% of 8(a) Participant Y; non-disadvantaged individual D owns 35% of Y; and non-disadvantaged individual E owns 5% of ( print page 68301) Y. C seeks to transfer 5% of Y to E. Prior SBA approval is not needed. Although non-disadvantaged individual D owns more than 30% of Y, D is not involved in the transfer. Because the only non-disadvantaged individual involved in the transfer, E, owns less than 30% of Y both before and after the transaction, prior approval is not needed.

Example 3 to paragraph (i)(2). Disadvantaged individual A owns 80% of 8(a) Participant X; non-disadvantaged individual B owns 20% of X. A seeks to transfer 15% of X to B. SBA approval is needed. Although B, the non-disadvantaged owner of X, owns less than 30% of X prior to the transaction, prior approval is needed because B would own more than 30% after the transaction.

Example 4 to paragraph (i)(2). ANC A owns 55% of 8(a) Participant X; non-disadvantaged individual B owns 45% of X. B seeks to transfer 10% to A. Prior SBA approval is not needed. Although a non-disadvantaged individual who is involved in the transaction, B, owns more than 30% of X both before and after the transaction, SBA approval is not needed because the change only increases the percentage of A's ownership interest in X.

Example 5 to paragraph (i)(2). Disadvantaged individual C owns 65% of 8(a) Participant Z and non-disadvantaged individual D owns 35% of Z. Z has been in the 8(a) BD program for 2 years but has not yet been awarded an 8(a) contract. C seeks to transfer 10% to D. Although a non-disadvantaged individual who is involved in the transaction, D, owns more than 30% of Z both before and after the transaction, prior SBA approval is not needed because Z has never received an 8(a) contract.

(k) Right of first refusal. A right of first refusal granting a non-disadvantaged individual or other entity the contractual right to purchase the ownership interests of a qualifying disadvantaged individual does not affect the unconditional nature of ownership, if the terms follow normal commercial practices. If those rights are exercised by a non-disadvantaged individual or other entity after certification, the Participant must notify SBA. If the exercise of those rights results in disadvantaged individuals owning less than 51% of the concern, SBA will initiate termination pursuant to §§ 124.303 and 124.304.

13. Amend § 124.106 by:

a. Removing paragraph (d)(3);

b. Redesignating paragraphs (d)(4) and (d)(5) as paragraphs (d)(3) and (d)(4), respectively;

c. Revising paragraph (e)(3);

d. Removing the text “director, or key employee” in paragraph (f) and adding in its place the text “or director”;

e. Redesignating paragraph (h) as paragraph (i); and

f. Adding new paragraph (h).

The revision and addition to read as follows:

(3) Receive compensation from the applicant or Participant in any form as a director, officer or employee, that exceeds the compensation to be received by the highest ranking officer (usually CEO or President), unless the concern demonstrates that the compensation to be received by the non-disadvantaged individual is commercially reasonable or that the highest-ranking officer has elected to take lower compensation to benefit the applicant or Participant. A Participant must notify SBA within 30 calendar days if the compensation paid to the highest-ranking officer of the Participant falls below that paid to a non-disadvantaged individual. In such a case, SBA must determine that that the compensation to be received by the non-disadvantaged individual is commercially reasonable or that the highest-ranking officer has elected to take lower compensation to benefit the Participant before SBA may determine that the Participant is eligible for an 8(a) award.

(h) Exception for extraordinary circumstances. SBA will not find that a lack of control exists where a socially and economically disadvantaged individual does not have the unilateral power and authority to make decisions regarding the following extraordinary circumstances:

(1) Adding a new equity stakeholder;

(2) Dissolution of the company;

(3) Sale of the company or all assets of the company;

(4) The merger of the company;

(5) The company declaring bankruptcy; and

(6) Amendment of the company's corporate governance documents to remove the shareholder's authority to block any of (1) through (5).

14. Amend § 124.107 by:

a. Revising the first sentence of the introductory text;

b. Revising paragraph (a);

c. Removing paragraph (e); and

d. Redesignating paragraph (f) as paragraph (e).

SBA must determine that with contract, financial, technical, and management support from the 8(a) BD program, from contractors or from others assisting with business operations, the applicant concern is able to perform 8(a) contracts and possess reasonable prospects for success in competing in the private sector. * * *

(a) Income tax returns for each of the two previous tax years must show operating revenues.

15. Amend § 124.108 by:

a. Removing paragraph (a)(1);

b. Redesignating paragraphs (a)(2), (a)(3), (a)(4) and (a)(5) as paragraphs (a)(1), (a)(2), (a)(3), and (a)(4), respectively; and

c. Revising newly redesignated paragraph (a)(3) and paragraph (e).

The revision to read as follows:

(3) An applicant is ineligible for admission to the 8(a) BD program if the applicant concern or a proprietor, partner, limited liability member, director, officer, or holder of at least 20 percent of its stock, or another person (including key employees) with significant authority over the concern lacks business integrity as demonstrated by conduct that could be grounds for suspension or debarment;

(e) Federal financial obligations. A business concern is ineligible for admission to or participation in the 8(a) BD program if either the concern or any of its principals has failed to pay significant financial obligations owed to the Federal Government, including unresolved tax liens and defaults on Federal loans or other Federally assisted financing. However, a small business concern may be eligible if the concern or the affected principals can demonstrate that they are current on an approved repayment plan or the financial obligations owed have been settled and discharged/forgiven by the Federal Government.

16. Amend § 124.203 by removing the last three sentences and adding a sentence in their place to read as follows:

* * * The majority socially and economically disadvantaged owner ( print page 68302) must take responsibility for the accuracy of all information submitted on behalf of the applicant.

17. Amend § 124.204 by revising paragraph (d) to read as follows:

(d) An applicant must be eligible as of the date SBA issues a decision. An applicant's eligibility will be based on the totality of circumstances, including facts set forth in the application, supporting documentation, any information received in response to any SBA request for clarification, and any changed circumstances.

18. Revise § 124.207 to read as follows:

A concern which has been declined for 8(a) BD program participation may submit a new application for admission to the program at any time after 90 calendar days from the date of the Agency's final decision to decline.

19. Amend § 124.303 by adding paragraph (c) to read as follows:

(c) Termination based on false or misleading information. (1) A firm that is terminated from the 8(a) BD Program due to the submission of false or misleading information may be removed from SBA's other small business contracting programs, including the HUBZone Program, the Women-Owned Small Business (WOSB) Program, the Veteran Small Business Certification (VetCert) Program, and SBA's Mentor-Protégé Program.

(2) A firm that is decertified from the HUBZone Program, the WOSB Program, or the VetCert Program due to the submission of false or misleading information may be terminated from the 8(a) BD Program.

(3) SBA may require a firm that is decertified from the HUBZone Program, the WOSB Program, or the VetCert Program due to the submission of false or misleading information to enter into an administrative agreement with SBA as a condition of admission to the 8(a) BD program.

20. Amend § 124.403 by removing the text “within thirty (30) days after” from paragraph (a) and adding, in its place, the text “in the 90 days prior to”.

21. Amend § 124.503 by revising paragraph (g)(1)(iii) to read as follows:

(iii) For open requirements, the effect that contract would have on the equitable distribution of 8(a) contracts; and

22. Amend § 124.504 by revising paragraph (a) to read as follows:

(a) Prior intent to award as a small business set-aside, or use the HUBZone, VetCert, or Women-Owned Small Business programs. A procuring activity, for itself or for another end user, issued a solicitation for or otherwise expressed publicly a clear intent to award the contract as a small business set-aside, or to use the HUBZone, VetCert, or Women-Owned Small Business programs prior to offering the requirement to SBA for award as an 8(a) contract. However, SBA may accept the requirement into the 8(a) BD program where the AA/BD determines that there is a reasonable basis to cancel the initial solicitation or, if a solicitation had not yet been issued, a reasonable basis for the procuring agency to change its initial clear expression of intent to procure outside the 8(a) BD program ( e.g., the procuring agency's needs have changed since the initial solicitation was issued such that the solicitation no longer represents its current needs; or appropriations are no longer available for the requirement as anticipated). A change in strategy only ( i.e., an agency seeking to solicit through the 8(a) BD program instead of through another previously identified program) will not constitute a reasonable basis for SBA to accept the requirement into the 8(a) BD program.

23. Amend § 124.509 by:

a. Removing the text “within 30 days from” in paragraph (c)(1) and adding in its place the text “in the 90 days prior to”;

b. Redesignating paragraph (d)(1)(ii) as paragraph (d)(1)(iii); and

c. Adding new paragraph (d)(1)(ii).

The addition to read as follows:

(ii) In determining the projected revenue SBA should consider in determining whether one or more unsuccessful offers submitted by the Participant would have given the Participant sufficient revenues to achieve the applicable non-8(a) business activity target under paragraph (d)(1)(i)(A) of this section, SBA will consider:

(A) Only procurements for which the Participant had reasonable prospects of success; and

(B) Only the base year of the procurement at issue and not the projected full value of the procurement.

Example 1 to paragraph (d)(1)(ii): Participant X is in year 2 of the transitional stage (or year 6 of the 8(a) BD program). It has never received a contract in excess of $5M. X received $20M in total revenue and $3M in non-8(a) revenue during program year 6. X failed to meet its applicable non-8(a) business activity target (BAT) of 25% ($20M × 0.25 = $5M). To demonstrate its good efforts to achieve non-8(a) revenue, X submits evidence that it submitted two offers: one for a five-year contract valued at $100M and one for a five-year contract valued at $5M. SBA would not consider the first offer to qualify as a “good faith effort” since there was no reasonable prospect for success in submitting an offer for a $100M contract where the firm had never performed a contract in excess of $5M. The second offer would count as a good faith effort since its overall value was in line with previous contracts X had performed. However, because SBA considers only the projected revenue for the base year of the contract (or $1M), considering this offer does not bring X into compliance with its BAT ($3M + $1M = $4M, which is less than the $5M required to be in compliance).

24. Amend § 124.514 by revising paragraph (a)(1) to read as follows:

(1) If a firm's term of participation in the 8(a) BD program has ended (or the firm has otherwise exited the program) or is no longer small under the size standard corresponding to the NAICS code for the requirement, negotiations to price the option cannot be entered into and the option cannot be exercised.

25. Amend § 124.518 by revising the section heading and adding paragraph (d) to read as follows:

(d) Novation to the lead partner to an 8(a) joint venture. A joint venture that was awarded an 8(a) contract may seek to novate the 8(a) contract to the lead 8(a) Participant to the joint venture, provided each member of the joint venture agrees to such novation. In order for SBA to authorize novation, SBA must determine that the 8(a) Participant seeking to be novated the contract continues to meet all 8(a) eligibility requirements as if for a new 8(a) contract at the time of novation and the procuring agency must determine that the 8(a) firm is capable and responsible to perform the contract.

26. Amend § 124.602 by:

a. Removing the word “$10,000,000” in paragraphs (a)(1) and (a)(2) and adding in its place the word “$20,000,000”;

b. Removing the words “$2,000,000 and $10,000,000” in paragraph (b)(1) and adding in their place the words “5,000,000 and $20,000,000”; and

c. Removing the word “$2,000,000” in paragraph (c) and adding in its place the word “$5,000,000”.

27. Amend § 124.603 by removing the word “Former” and adding in its place the words “If requested by the SBA, former”.

28. The authority citation for part 125 continues to read as follows:

Authority: 15 U.S.C. 632(p) , (q), 634(b)(6), 637, 644, 657f, 657q, 657r, and 657s; 38 U.S.C. 501 and 8127 .

29. Amend § 125.1 by adding, in alphabetical order, the definitions of “Agreement”, “Disqualifying Recertification”, “Qualifying Recertification”, and “Set-Aside or Reserved Award” to read as follows:

Agreement means a Blanket Purchase Agreement, Basic Agreement, or a Basic Ordering Agreement.

Disqualifying recertification means a recertification as either other than small or other than a qualified small business program participant that is required for eligibility to participate in a Set Aside or Reserved Award.

Qualifying recertification means a recertification as small or as a qualified small business program participant that is required for eligibility to participate in a Set Aside or Reserved Award.

Set Aside or Reserved Award means a contract, including multiple award contracts, agreements, or orders against contracts or agreements, that are set aside, partially set aside, or reserved for small business or any socio-economic small business program participants.

30. Amend § 125.2 by redesignating paragraph (c)(6) as paragraph (c)(7) and adding new paragraph (c)(6) to read as follows:

(6) Prohibition on competitions requiring or favoring additional socioeconomic certifications. A procuring activity cannot create a small business set-aside or reserve (for either a contract, order or agreement) that requires one or more socioeconomic certifications in addition to a size certification ( i.e., a competition cannot be limited only to small business concerns that are also 8(a), HUBZone, WOSB, or SDVOSB certified) or give evaluation preferences to concerns having one or more socioeconomic certifications.

31. Amend § 125.3 by:

a. Adding paragraphs (a)(4) and (b)(4);

b. Removing from paragraph (d)(1) the text “30 days” and “October 30th” and adding in their place “45 days” and “November 14th”, respectively; and

c. Removing from paragraph (d)(2) the text “60 days” and “November 30th” and adding in their place “75 days” and “December 14th”, respectively.

The additions read as follows:

(4) For subcontracting purposes, a concern must qualify as a small business concern and a socioeconomic small business concern as of the date that it certifies that it is small or that it qualifies as a socioeconomic small business concern for the subcontract.

(4) Except for HUBZone and SDVO small business subcontractors, a prime contractor may rely on the socioeconomic self-certification of a subcontractor provided the prime contractor does not have a reason to doubt the subcontractor's self-certification.

32. Amend § 125.6 by revising the second sentence and adding a new third sentence in paragraph (d) introductory text and adding two sentences to the end of paragraph (d)(3) to read as follows:

(d) * * * However, for a multi-agency set aside contract where more than one agency can issue orders under the contract, the ordering agency must use the period of performance for each order to determine compliance and monitor compliance with the limitations on subcontracting for that specific order. At the end of performance of the order, the ordering contracting officer should then inform the contracting officer for the underlying multi-agency contract if the ordering contracting officer knows that the contractor has failed to meet the applicable limitations on subcontracting requirement. * * *

(3) * * * Work performed by an employee obtained from a temporary employee agency, professional employee organization, or leasing concern shall be treated as the recipient concern's self-performance. The work performed by employees leased to the small business prime contractor will therefore not count against the applicable limitation on subcontracting.

33. Amend § 125.8 by:

a. Removing the second sentence in paragraph (e) and adding in its place two sentences;

b. Adding an Example 1 to paragraph (e); and

c. Revising paragraph (f).

The additions and revision read as follows:

(e) * * * A procuring activity has discretion whether to require a protégé member of a joint venture to demonstrate some level of past performance and/or experience. Where it does so, the procuring activity may not require a protégé firm to individually meet all the same evaluation or responsibility criteria as that required of other offerors generally. * * * ( print page 68304)

Example 1 to paragraph (e). A solicitation requires offerors to demonstrate successful performance on five similar contracts valued at $20 million or more. Because a protégé joint venture partner must perform at least 40% of the work to be done by a successful joint venture offeror, the procuring activity seeks to require a protégé joint venture partner to demonstrate some past performance. The procuring activity may require a protégé joint venture partner to demonstrate one or two contracts valued at $10 million or $8 million, but may not require the protégé to demonstrate successful performance on five similar contracts and may not require the protégé to demonstrate successful performance on contracts valued at $20 million. In addition, if a procuring activity requires a protégé joint venture partner to demonstrate successful performance on two contracts valued at $10 million or more, successful performance by the protégé firm on those $10 million contracts shall be rated equivalently to successful performance by the mentor partner to the joint venture or any other individual offeror on $20 million contracts.

(f) Contract execution. The procuring activity will execute a contract set aside or reserved for small business in the name of the joint venture entity where there is a separate legal entity joint venture or the name of a small business partner to the joint venture where there is an informal joint venture, but in either case will identify the award as one to a small business joint venture or a small business mentor-protégé joint venture, as appropriate.

34. Amend § 125.9 by:

a. Revising paragraph (b) introductory text;

b. Revising paragraph (b)(2);

c. Adding the word “a” after the words “more than one protégé at” and before the word “time” in paragraph (b)(3) introductory text;

d. Adding paragraph (b)(4);

e. Redesignating paragraph (e)(6) as paragraph (c)(4);

f. Revising newly redesignated paragraph (c)(4)(iv);

g. Adding paragraph (c)(5);

h. Adding paragraph (d)(1)(iv); and

i. Redesignating paragraphs (e)(7), (8) and (9) as paragraphs (e)(6), (7) and (8), respectively.

The revisions and additions read as follows:

(b) Mentors. Any for-profit business concern that demonstrates a commitment and the ability to assist small business concerns may act as a mentor and receive benefits as set forth in this section. This includes other than small businesses.

(2) (i) SBA will decline an application if SBA determines that the mentor does not possess good character or a favorable financial position, employs or otherwise controls the managers or key employees of the protégé, or is otherwise affiliated with the protégé.

(ii) SBA may terminate the mentor-protégé agreement if:

(A) SBA determines that the mentor does not possess good character or a favorable financial position;

(B) SBA determines that the mentor was affiliated with the protégé at the time of application or becomes affiliated with the protégé for reasons other than the mentor-protégé agreement or assistance provided under the agreement; or

(4) A mentor cannot be a contract holder through joint ventures with two protégé small business concerns on the same small business multiple award contract or small business reserve on a multiple award contract at the same time.

(i) Where a mentor purchases another business entity that is also an SBA-approved mentor that is a contract holder as a joint venture with a protégé small business and the mentor is also a contract holder with a protégé small business on that same multiple award contract, the mentor must exit one of those joint venture relationships.

(ii) The protégé firm connected to the joint venture from which the mentor exits may seek to:

(A) Acquire the new mentor's interest in the small business multiple award contract or reserve and, where necessary and appropriate, novate such contract or reserve to itself only pursuant to FAR 42.1204; or

(B) Replace the new mentor with another business in the joint venture such that the revised joint venture continues to qualify as small, and, where necessary and appropriate, novate such contract or reserve pursuant to FAR 42.1204.

(iv) Instead of having a six-year mentor-protégé relationship with two separate mentors, a protégé may seek to extend or renew a mentor-protégé relationship with the same mentor for a second six-year term. In order for SBA to approve an extension or renewal of a mentor-protégé relationship with the same mentor, the mentor must commit to providing additional business development assistance to the protégé. Whether a protégé has a mentor-protégé relationship with two different mentors or the same mentor for a second six-year period, a concern cannot be a protégé for a total of more than 12 years.

(5) Where a business concern purchases another business concern that is currently the mentor of a protégé firm, that business concern can become the new mentor of the protégé if it commits to honoring the obligations under the seller's mentor-protégé agreement or the purchasing business concern and the protégé negotiate a new mentor-protégé agreement that SBA approves. Where that occurs, that new mentor-protégé relationship will be effective for no longer than six years minus the length of the mentor-protégé relationship with the seller mentor.

(i) If the purchasing business concern and the protégé firm cannot agree on either continuing with the previous mentor-protégé agreement or negotiating a new mentor-protégé agreement that is acceptable to SBA, the protégé firm can terminate its mentor-protégé relationship.

(ii) Where a mentor-protégé relationship is terminated, the protégé firm may seek another business concern to enter a mentor-protégé relationship for a duration not to exceed six years minus the length of the mentor-protégé relationship with the former mentor.

Example 1 to paragraph (c)(5). 8(a) Participant A enters a mentor-protégé relationship with business concern X. After 3 years, business concern Y purchases X. A and Y agree to continue to abide by the mentor-protégé agreement between A and X. The mentor-protégé relationship between A and Y can last no longer than 3 years (6 years minus the length of the A and X mentor-protégé relationship). At the end of that agreement A and Y could seek to renew the mentor-protégé relationship for another 6 years if this is A's first mentor-protégé relationship.

Example 2 to paragraph (c)(5). 8(a) Participant Z enters a mentor-protégé relationship with business concern B. After 3 years, business concern C purchases B. If either C is unwilling to abide by the terms of the Z/B mentor-protégé agreement or Z does not want to extend a mentor protégé relationship with C and the mentor-protégé agreement is terminated, Z may seek a ( print page 68305) new business concern to enter a mentor-protégé relationship. If business concern D agrees to enter into a mentor-protégé relationship with Z and SBA approves that relationship, the Z/D mentor-protégé relationship can last for no longer than 3 years (6 years minus the length of the Z/B mentor-protégé relationship). If that was Z's first mentor-protégé relationship, Z may seek to extend the Z/D mentor-protégé relationship for an additional 6 years or may seek a new mentor-protégé relationship with another firm for up to 6 years. In no case can a protégé firm have mentor-protégé relationships lasting more than 12 years.

(iv) Where a mentor seeks to sell its interest in a mentor-protégé joint venture, the protégé firm shall have a right of first refusal to purchase that interest.

35. Add § 125.12 to read as follows:

(a) General. Recertification of size and small business program status ( i.e., 8(a), HUBZone, WOSB/EDWOSB, or SDVOSB) is required within 30 calendar days of an approved novation, merger, acquisition, or sale, including agreements in principle, of or by a concern or an affiliate of the concern, which results in a change in controlling interest.

(1) A concern and the acquiring concern must recertify if each has received an award as a small business or small business program participant.

(2) In the context of a joint venture, recertification is required from any partner to the joint venture that has merged or is party to the sale or acquisition.

(3) Recertification does not change the terms and conditions of the award. The limitations on subcontracting, non-manufacturer and subcontracting plan requirements in effect at the time of award remain in effect throughout the life of the award regardless of whether a recertification is qualifying or disqualifying. However, a contracting officer may require a subcontracting plan if a prime contractor's size status changes from small to other than small as a result of a size recertification.

(4) A size re-certification shall relate to the size standard in effect at the time of re-certification that corresponds to the NAICS code that was initially assigned to the award.

(b) Long term contracts. For contracts (including multiple award contracts) and orders with durations of more than five years (including options), a concern must recertify its size and status no more than 120 days prior to the end of the fifth year of the award, and no more than 120 days prior to exercising any option thereafter. A contracting officer may also request size and/or status recertification, as he or she deems appropriate, prior to the 120-day point in the fifth year of a long-term contract or order. The agency and the contractor must immediately revise all applicable Federal contract databases to reflect the new size status.

(c) Request by contracting officer. Recertification of size and small business program status is required where the contracting officer explicitly requires concerns to recertify their size or status in response to a solicitation for a set aside or reserved order or agreement.

(d) Change in structure of entity-owned concern. Size or status recertification is not required when the ownership of a concern that is at least 51% owned by an Indian Tribe, Alaska Native Corporation, or Community Development Corporation changes to or from a wholly-owned business concern of the same entity, as long as the ultimate owner remains that entity.

Example 1 to paragraph (d). Indian Tribe X owns 100% of small business ABC. ABC wins an award for a small business set-aside contract. In year two of contract performance, X changes the ownership of ABC so that X owns 100% of a holding company XYZ, Inc., which in turn owns 100% of ABC. This restructuring does not require ABC to recertify its status as a small business because it continues to be 100% owned (indirectly rather than directly) by Indian Tribe X.

(e) Effect of Recertification.

(1) Qualifying Recertification. A concern that has a qualifying recertification is generally considered to be a small business or small business program participant for up to five years from the date of the recertification and remains eligible for set-aside or reserved awards unless there is a subsequent disqualifying recertification.

(2) Disqualifying Recertification.

(i) Pending Set Aside or Reserved Award. If events triggering a disqualifying recertification under paragraph (a) of this section occur within 180 days after the date of an offer but prior to award, the concern is ineligible to receive the pending small business set aside or reserved award. The concern must notify the contracting officer of the change in its size or status. If events triggering a disqualifying recertification under paragraph (a) of this section occur more than 180 days after the date of an offer but prior to award, the concern is eligible to receive a pending single award or reserve and the award will count as an award to a small business or small business program participant for goaling purposes for up to five years from the date of the award unless there is a disqualifying recertification. However, where the underlying award is a multiple award small business set aside or reserve the concern is ineligible for the pending award because the concern would not be eligible for orders set aside for small business or set aside for a specific type of small business. See paragraph (e)(2)(ii)(B) of this section.

(ii) Future Set Aside or Reserved Award.

(A) Request for Recertification on a Specific Order or Agreement. If a concern has a disqualifying recertification in response to a contracting officer request for recertification on a specific order or agreement, the concern is ineligible for the specific order or agreement but remains eligible for other set aside or reserved awards and unrestricted awards.

(B) Other Events Triggering Recertification. If a concern has a disqualifying recertification in response to any triggering event for recertification, aside from a contracting officer request for recertification on a specific order or agreement, the concern is ineligible to submit an offer for a set aside or reserved award under a multiple award contract after the triggering event occurs. The concern remains eligible for unrestricted awards under a multiple award contract and orders issued under a single award small business contract. In either case, a procuring agency could not count the order as an award to small business or to the specific type of small business ( i.e., 8(a), WOSB, SDVOSB, or HUBZone).

(iii) Options.

(A) For a single award small business set-aside or reserve award or any unrestricted award, a concern that submits a disqualifying recertification remains eligible to receive options. The procuring agency cannot count the option period as an award to a small business or small business program participant for goaling purposes. Such a concern may make a qualifying recertification for a subsequent option period if it meets the applicable size standard or becomes a certified small business program participant.

(B) For a multiple award small business set-aside or reserve award, a concern that submits a disqualifying ( print page 68306) recertification is ineligible to receive options.

(f) Joint venture recertifications. Where a joint venture must recertify its small business size status under paragraph (a) of this section, the joint venture can recertify as small where all parties to the joint venture qualify as small at the time of recertification, or the protégé small business in a still active mentor-protégé joint venture qualifies as small at the time of recertification. A joint venture can recertify as small even though the date of recertification occurs more than two years after the joint venture received its first contract award ( i.e., recertification is not considered a new contract award under § 121.103(h).

36. Add § 125.13 to read as follows:

(a) The compensation received by any packager, agent, or representative of a concern applying for 8(a) BD, HUBZone, WOSB/EDWOSB, or VOSB/SDVOSB certification in exchange for assisting the applicant in obtaining such certification must be reasonable in light of the service(s) performed by the packager, agent, or representative.

(b) The compensation received by any packager, agent, or representative of a certified 8(a) BD, HUBZone small business concern, WOSB/EDWOSB, or VOSB/SDVOSB in exchange for assisting the concern in obtaining any small business contracts, orders, BPAs, BAs, or BOAs must be reasonable in light of the service(s) performed by the packager, agent, or representative, and cannot be a fee that is a percentage of the gross value of the contract, order, BPA, BA or BOA.

(c) For good cause, SBA may initiate proceedings to suspend or revoke a packager's, agent's, or representative's privilege to assist applicants obtain SBA certification and assist certified small business concerns obtain contracts, orders, or any other assistance to support participation in the 8(a) BD, HUBZone, WOSB or VetCert programs. Good cause is defined in § 103.4 of this chapter.

(1) SBA may send a “show cause” letter requesting the agent or representative to demonstrate why the agent or representative should not be suspended or proposed for revocation, or may immediately send a written notice suspending or proposing revocation, depending upon the evidence in the administrative record. The notice will include a discussion of the relevant facts and the reason(s) why SBA believes that good cause exists.

(2) Unless SBA specifies a different time in the notice, the agent or representative must respond to the notice within 30 calendar days of the date of the notice with any facts or arguments showing why good cause does not exist. The agent or representative may request additional time to respond, which SBA may grant in its discretion.

(3) After considering the agent's or representative's response, SBA will issue a final determination, setting forth the reasons for this decision and, if a suspension continues to be effective or a revocation is implemented, the term of the suspension or revocation.

(d) The relevant SBA program office may refer a packager, agent, or other representative to SBA's Suspension and Debarment Official for possible Government-wide suspension or debarment where appropriate, including where it appears that the packager, agent, or representative assisted an applicant or certified small business concern to submit information to SBA that the packager, agent, or representative knew to be false or materially misleading.

37. The authority citation for part 126 continues to read as follows:

Authority: 15 U.S.C. 632(a) , 632(j) , 632(p) , 644 and 657a .

38. Amend § 126.100 by removing the words “qualified SBCs” and adding in their place the words “small business concerns”.

39. Amend § 126.102 by removing the words “qualified HUBZone SBCs” and adding in their place the words “certified HUBZone small business concerns”.

40. Amend § 126.103 by:

a, Removing the definition for “AA/BD”;

b. Revising the definitions for “Certify”, “Community Development Corporation (CDC)”, “Contracting Officer (CO)”, “Decertify”, “Dynamic Small Business Search (DSBS)”, “Employee”, “Governor-Designated Covered Area”, “HUBZone small business concern or certified HUBZone small business concern”, “Indian Tribal Government”, “Interested party”, “Principal office”, “Qualified Disaster Area”, “Redesignated Area”, “Reside”, and “Small business concern”;

c. Removing paragraph (3) in the definition of “Qualified Census Tract”;

d. Removing paragraph (4) in the definition of “Qualified Non-Metropolitan County”;

e. Adding definitions for “HUBZone certification date”, “HUBZone Map”, “HUBZone resident employee”, and “System for Award Management (SAM)”, in alphabetical order.

Certification or Certify means the process by which SBA determines that a concern is qualified for the HUBZone program and eligible to be designated by SBA as a certified HUBZone small business concern in DSBS (or successor system).

Contracting Officer (CO) has the meaning given that term in 41 U.S.C. 2101(1) , which defines a CO as a person who, by appointment in accordance with applicable regulations, has the authority to enter into a Federal agency procurement contract on behalf of the Government and to make determinations and findings with respect to such a contract.

Decertify means the process by which SBA removes a concern as a certified HUBZone small business concern from DSBS (or successor system) upon a finding that the firm does not meet the HUBZone eligibility requirements or after a firm voluntarily withdraws from the HUBZone program.

Dynamic Small Business Search (DSBS) means the database that government agencies use to find small business contractors for upcoming contracts. The information a business provides when registering in SAM, as defined in this section, is used to populate DSBS. For HUBZone Program purposes, a concern's DSBS profile will indicate whether it is a certified HUBZone small business concern, and if so, the date it was certified.

Employee means an individual employed on a full-time, part-time, or other basis, so long as that individual works a minimum of 80 hours during ( print page 68307) the four-week period immediately prior to the relevant date of review.

(1) To determine the number of hours worked by each individual employed by the firm, SBA will review a concern's payroll records for the most recently completed pay periods that account for the four-week period immediately prior to the relevant date of review. To determine if an individual is an employee, SBA reviews the totality of circumstances, including criteria used by the Internal Revenue Service (IRS) for Federal income tax purposes and the factors set forth in SBA's Size Policy Statement No. 1 ( 51 FR 6099 , February 20, 1986).

(2) In general, the following are considered employees:

(i) Individuals obtained from a temporary employee agency, from a concern primarily engaged in leasing employees, or through a union agreement, or co-employed pursuant to a Professional Employer Organization agreement;

(ii) An individual who has an ownership interest in the concern and who works for the concern 80 hours or more during the four-week period immediately prior to the relevant date of review, whether or not the individual receives compensation;

(iii) An owner who works less than 80 hours during the four-week period immediately prior to the relevant date of review, where another individual has not been hired to manage and direct the actions of the concern's employee(s).

(3) In general, the following are not considered employees:

(i) Individuals who are not owners and receive no compensation (including no in-kind compensation) for work performed;

(ii) Individuals who receive deferred compensation for work performed;

(iii) Independent contractors to whom payments are reported via IRS Form 1099 and who are not otherwise considered employees under SBA's Size Policy Statement No. 1; and

(iv) Subcontractors.

(3) Employees of an affiliate may be considered employees, if the totality of the circumstances shows that there is no clear line of fracture between the HUBZone applicant (or certified HUBZone small business concern) and its affiliate(s) ( see § 126.204).

(4) An individual must perform work for the concern to be considered an employee for HUBZone purposes. SBA may require evidence that an individual is performing work, including but not limited to the following: a job description; the individual's resume; timesheets; proof of onboarding and/or training; evidence of regular communication assigning work to the individual and responses to such communication; examples of work product commensurate with hours worked; documentation demonstrating the individual's participation in online or telephonic meetings with supervisors or colleagues, such as meeting invitations, notes from meetings, post-meeting questions or assignments; written attestations; and other relevant documentation.

Governor-Designated Covered Area means an area that SBA has designated as a HUBZone by approving a Governor-generated petition pursuant to the procedures described in § 126.104.

HUBZone certification date means the date on which SBA approves a concern's application for HUBZone certification and is the date specified in the concern's certification letter. If a concern leaves the HUBZone program and reapplies for certification, their HUBZone certification date is the date SBA approves the concern's most recent application.

HUBZone Map means a publicly accessible online tool that depicts HUBZones.

HUBZone resident employee means an individual who meets the definition of an employee and who SBA has determined resides in a HUBZone.

HUBZone small business concern or certified HUBZone small business concern means a small business concern that meets the requirements described in § 126.200 and that SBA has certified as eligible for federal contracting assistance under the HUBZone program.

Indian Tribal Government means the governing body of any Indian tribe, band, nation, pueblo, or other organized group or community which is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians, or is recognized as such by the State in which the tribe, band, nation, group, or community resides.

Interested party means any certified HUBZone small business concern that submits an offer for a specific HUBZone set-aside contract (including a multiple award contract) or order, any concern that submitted an offer in full and open competition and its opportunity for award will be affected by a price evaluation preference given to a certified HUBZone small business concern or by a reserve of an award given to a certified HUBZone small business concern, the contracting activity's contracting officer, or SBA.

Principal Office means the location where the greatest number of the concern's employees at any one location perform their work.

(1) In order for a location to be considered the principal office, the concern must provide a deed or an active lease that includes a start date that was at least 30 calendar days prior to the relevant date of review, and an end date that is at least 60 calendar days after the relevant date of review, as well as any other documentation requested by SBA;

(2) In order for a location to be considered the principal office, the concern must conduct business at this location. The concern may be required to demonstrate that it is doing so by submitting evidence including but not limited to the following:

(i) Photos and/or a live or virtual walk-through of the space; and

(ii) For shared working spaces, evidence that the firm has dedicated space within any shared location, and that such dedicated space contains sufficient work surface area, furniture, and equipment to accommodate the number of employees claimed to work from this location;

(3) If an employee works at multiple locations, then the employee will be deemed to work at the location where the employee spends more than 50% of his or her time. If an employee does not spend more than 50% of his or her time at any one location and at least one of those locations is a non-HUBZone location, then the employee will be deemed to work at a non-HUBZone location.

(4) If 100% of a firm's employees telework, at least 51% of its employees must work from HUBZone locations to meet the principal office requirement.

(5) For those concerns whose “primary industry classification” is services or construction (see § 121.201 of this chapter), the determination of principal office excludes the concern's employees who perform more than 50% of their work at job-site locations to fulfill specific contract obligations. If all of a concern's employees perform more than 50% of their work at job sites, the concern does not comply with the principal office requirement.

(i) Example 1: A business concern whose primary industry is construction has a total of 78 employees, including the owners. The business concern has one office (Office A), which is located in a HUBZone, with 3 employees working at that location. The business ( print page 68308) concern also has a job-site for a current contract, where 75 employees perform more than 50% of their work. The 75 job-site employees are excluded for purposes of determining principal office. Since the remaining 3 employees all work at Office A, Office A is the concern's principal office. Since Office A is in a HUBZone, the business concern complies with the principal office requirement.

(ii) Example 2: A business concern whose primary industry is services has a total of 4 employees, including the owner. The business concern has one office located in a HUBZone (Office A), where 2 employees perform more than 50% of their work, and a second office not located in a HUBZone (Office B), where 2 employees perform more than 50% of their work. Since there is not one location where the greatest number of the concern's employees at any one location perform their work, the business concern would not have a principal office in a HUBZone.

(iii) Example 3: A business concern whose primary industry is services has a total of 6 employees, including the owner. Five of the employees perform all of their work at job-sites fulfilling specific contract obligations. The business concern's owner performs 45% of her work at job-sites, and 55% of her work at an office located in a HUBZone (Office A) conducting tasks such as writing proposals, generating payroll, and responding to emails. Office A would be considered the principal office of the concern since it is the only location where any employees of the concern work that is not a job site and the 1 individual working there spends more than 50% of her time at Office A. Since Office A is located in a HUBZone, the small business concern would meet the principal office requirement.

Qualified Disaster Area. (1) Qualified Disaster Area means any census tract or non-metropolitan county located in an area where a major disaster declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act ( 42 U.S.C. 5170 ) has occurred or an area in which a catastrophic incident has occurred if such census tract or non-metropolitan county ceased to be a Qualified Census Tract or Qualified Non-Metropolitan County during the period beginning 5 years before the date on which the President declared the major disaster or the catastrophic incident occurred.

(2) A census tract or non-metropolitan county shall be considered to be a Qualified Disaster Area for the period of time starting on the date on which the President declared the major disaster for the area in which the census tract or non-metropolitan county, as applicable, is located (or in the case of a catastrophic incident, on the date on which the catastrophic incident occurred in the area in which the census tract or non-metropolitan county, as applicable, is located) and ending on the date when SBA next updates the HUBZone Map in accordance with § 126.104(a).

Redesignated Area means any census tract that ceases to be a Qualified Census Tract or any non-metropolitan county that ceases to be a Qualified Non-Metropolitan County. A Redesignated Area generally shall be treated as a HUBZone for a period of three years, starting from the date on which the area ceased to be a Qualified Census Tract or a Qualified Non-Metropolitan County. The date on which the census tract or non-metropolitan county ceases to be qualified is the date on which the official government data affecting the eligibility of the HUBZone is released to the public.

Reside means to live at a location full-time and for at least 90 calendar days immediately prior to the relevant date of review.

(1) To determine residence, SBA will first look to an individual's address identified on his or her driver's license or other government-issued identification card.

(i) Where such documentation is not available (or where the address on the individual's driver's license it outdated), SBA will require other specific proof of residency, such as deeds, leases, and/or utility bills, as well as a signed statement explaining why a driver's license is unavailable and attesting to an individual's dates of residency.

(ii) Where such documentation does not demonstrate 90 days of residency, SBA will require a signed statement attesting to an individual's dates of residency.

(2) For HUBZone purposes, SBA will consider individuals temporarily residing overseas in connection with the performance of a contract to reside at their U.S. residence.

(i) Example 1: A person possesses the deed to a residential property and pays utilities and property taxes for that property. However, the person does not live at this property, but instead rents out this property to another individual. For HUBZone purposes, the person does not reside at the address listed on the deed.

(ii) Example 2: A person moves into an apartment under a month-to-month lease and lives in that apartment full-time. SBA would consider the person to reside at the address listed on the lease if the person can show that he or she has lived at that address for at least 90 calendar days immediately prior to the relevant date of review ( i.e., date of application, date of recertification, or date of offer for a HUBZone contract).

(iii) Example 3: A person is working overseas on a contract for the small business and is therefore temporarily living abroad. The employee can provide documents showing he has paid rent for an apartment located in a HUBZone for at least 90 calendar days immediately prior to the relevant date of review. That person is deemed to reside in a HUBZone.

Small business concern means a concern that, with its affiliates, meets the size standard corresponding to any NAICS code listed in its profile in the System for Award Management (SAM or SAM.gov ), pursuant to part 121 of this chapter.

System for Award Management (SAM) has the same meaning as in FAR 2.101.

41. Revise § 126.104 as follows:

(a) Petition. Each calendar year, the Governor of a State may submit a petition to the SBA Office of the HUBZone Program requesting that certain covered areas be designated as Governor-designated covered areas. For a specific covered area to receive a designation as a Governor-designated covered area, the Governor of the State in which the identified covered area is wholly contained shall include such area in a petition to SBA requesting such a designation.

(1) A Governor may submit not more than 1 petition described in this section per calendar year.

(2) The petition described in this section shall include all covered areas in a State for which the Governor seeks designation as a Governor-designated covered area. The total number of covered areas included in such petition may not exceed 10 percent of the total number of covered areas in the State.

(3)(i) The total number of covered areas in a State shall be calculated by aggregating the number of census tracts and counties that qualify as covered areas as described in (d) of this section.

(ii) A petition need not seek SBA approval for those covered areas previously designated as Governor-designated covered areas. ( print page 68309)

(b) SBA Review. In reviewing a request for designation included in such a petition, the Administrator may consider:

(1) The potential for job creation and investment in the covered area;

(2) The demonstrated interest of small business concerns in the covered area to be designated as a Governor-designated covered area;

(3) How State and local government officials have incorporated the covered area into an economic development strategy; and

(4) If the covered area was a HUBZone before becoming the subject of the petition, the impact on the covered area if the Administrator did not approve the petition.

(c) SBA Decision. The AA/GCBD (or designee) is authorized to grant the petitions described in this section. If the AA/GCBD (or designee) grants a petition described in this section, SBA will issue a written notice to the petitioning Governor and add the newly designated Governor-designated covered areas to the HUBZone Map.

(d) Length of designation. A Governor-designated covered area will be treated as a HUBZone until SBA next updates the HUBZone Map in accordance with § 126.104(a), or one year after the petition is approved, whichever is later.

(e) Definitions. In this section:

(1) The term “covered area” means a census tract or county in a State—

(i) That is located outside of an urban area, as determined by the Bureau of the Census, with a population of not more than 50,000; and

(ii) For which the average unemployment rate is at least 120 percent of the average unemployment rate of the United States or of the State in which the covered area is located, whichever is less, based on the most recent data available from the American Community Survey conducted by the Bureau of the Census.

(2) The term “Governor” means the chief executive of a State.

(3) The term “State” means each of the States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the United States Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa.

42. Add § 126.105 to read as follows:

The HUBZone Map will be updated as follows:

(a) Qualified Census Tracts and Qualified Non-Metropolitan Counties will be updated every 5 years.

(b) Redesignated Areas will be added to the HUBZone Map when areas cease to be designated as Qualified Census Tracts or Qualified Non-Metropolitan Counties, in accordance with the 5-year cycle described in paragraph (a), and will be removed after 3 years.

(c) Qualified Base Closure Areas will be added to the HUBZone Map after SBA receives information from the Department of Defense that a new base closure area has been created and will be removed after 8 years.

(d) Qualified Disaster Areas generally will be added to the HUBZone Map on a monthly basis, based on data received by SBA from the Federal Emergency Management Agency (FEMA), and generally will be removed on the effective date of the 5-year HUBZone Map update following the declaration.

(e) Governor-Designated Covered Areas will be added to the HUBZone Map after SBA approves a petition in accordance with § 126.104 and will be removed on the effective date of the 5-year HUBZone Map update following the approval, or one year after the petition is approved, whichever is later.

43. Amend § 126.200 by:

a. Adding two sentences to the end of paragraph (b)(1);

b. Revising paragraph (c)(1);

c. Adding paragraph headings in paragraphs (c)(2) and (d)(2);

d. Removing the words “Example to paragraph (d)(3)” in paragraph (d)(3)(i) and adding in their place the words “Example 1 to paragraph (d)(3)”;

e. Revising paragraphs (d)(1) and (d)(3);

f. Revising paragraphs (e), (f), and (g); and

g. Adding paragraph (h).

(1) * * * In determining whether a concern qualifies as small under the size standard corresponding to a specific NAICS code, SBA will accept the concern's size representation in SAM, or successor system, unless there is evidence indicating that the concern is other than small. SBA will request a formal size determination pursuant to § 121.1001(b)(8) of this chapter where any information it possesses calls into question the concern's SAM.gov size representation.

(1) Long-term investment. (i) General. A concern that has purchased a building or entered a long-term lease of at least 10 years for a property in a HUBZone (other than in a Redesignated Area) will be deemed to have its principal office located in a HUBZone for up to 10 years from the date of the investment, as long as that building or property qualifies as the concern's principal office and continues to qualify as the concern's principal office, and as long as the firm maintains the long-term lease or continues to be the sole owner of the property.

(ii) Commencement of 10-year period. The 10-year principal office long-term investment protection period starts to run on the firm's HUBZone certification date (if the investment was made prior to the firm's certification) or on the date of the investment (if the investment was made after the firm's HUBZone certification date).

Example 1 to paragraph (d)(2)(i): If a firm was certified on March 31, 2020, and purchased a building on July 20, 2020, the 10-year clock would begin when the firm recertifies as of May 1, 2021.

(iii) Exceptions. The following do not qualify for this provision:

(A) An office located in a Redesignated Area at the time of initial HUBZone certification;

(B) An office that is shared with one or more other concerns or individuals;

(D) An investment made within 180 calendar days of the expiration of an area's designation as a Qualified Census Tract, Qualified Non-Metropolitan County, Governor-Designated Covered Area, or Qualified Base Closure Area.

(2) Tribally-owned concerns. * * *

(d) Employees. (1) General. In order to be eligible for HUBZone certification, at least 35% of a concern's employees must qualify as HUBZone Resident Employees. When determining the percentage of employees that must reside in a HUBZone to meet the 35% HUBZone residency requirement, if the percentage results in a fraction, SBA rounds to the nearest whole number, except for a firm with only one employee. For firms with only one employee, that one employee must reside in a HUBZone.

Example 1 to paragraph (d)(1): A concern has 25 employees; 35% of 25, or 8.75, employees must reside in a HUBZone. The number 8.75 rounded to the nearest whole number is 9. Thus, 9 employees must reside in a HUBZone.

Example 2 to paragraph (d)(1): A concern has 95 employees; 35% of 95, or 33.25, employees must reside in a HUBZone. The number 33.25 rounded to the nearest whole number is 33. ( print page 68310) Thus, 33 employees must reside in a HUBZone.

(3) Legacy HUBZone Employees. (i) An individual will be considered a Legacy HUBZone Employee and count as a HUBZone Resident Employee even if the employee subsequently moves to a location that is not in a HUBZone or the area in which the employee's residence is located no longer qualifies as a HUBZone if the individual:

(A) Continues to live in a HUBZone for at least 180 calendar days immediately after the firm's HUBZone certification date (or recertification date); and

(B) Continues to meet the definition of “employee” in § 126.103 continuously and without interruption.

(ii) An individual who initially qualified as a HUBZone Resident Employee by living in a Redesignated Area or a Qualified Disaster Area will not qualify as a Legacy HUBZone Employee.

(iii) A certified HUBZone small business concern may have up to one Legacy HUBZone Employee at a given time.

(iv) The certified HUBZone small business concern must maintain records of the Legacy HUBZone Employee's original HUBZone address, as well as records of any HUBZone other address in which the individual resided, as well as records of the individual's continuous and uninterrupted employment by the HUBZone small business concern, for the duration of the concern's participation in the HUBZone program. In order to demonstrate that an individual resided in a HUBZone for 180 days after certification (or recertification), the concern must submit to SBA copies of leases, utility bills, or property tax records.

(v) The certification date or recertification date being used to establish the HUBZone residency of the employee must be after December 26, 2019.

Example 1 to paragraph (d)(3): As part of its application for HUBZone certification, a concern provides documentation showing that it has 10 employees, 4 of which reside in HUBZones. SBA certifies the concern as a certified HUBZone small business concern. More than 180 days after being certified, two individuals who qualified as HUBZone Resident Employees, and were critical to the concern's meeting the 35% residency requirement, move out of the HUBZone area but continuously remain employees of the concern. Only one of these individuals may be treated as a Legacy Employee and count as a HUBZone Resident Employee for purposes of recertification.

(e) Attempt to maintain. (1) At the time of application and each recertification, a concern must certify that it will “attempt to maintain” ( see § 126.103) having at least 35% of its employees reside in a HUBZone during the performance of any HUBZone contract it receives.

(2) If the concern is owned in whole or in part by one or more Indian Tribal Governments (or by a corporation that is wholly owned by one or more Indian Tribal Governments), the concern must certify at the time of application and at each recertification that it will “attempt to maintain” (see § 126.103) the applicable employment percentage described in paragraph (c)(2) of this section during the performance of any HUBZone contract it receives.

(3) At the time of offer for a HUBZone contract, a concern must certify that it will “attempt to maintain” compliance with the 35% HUBZone residency requirement.

(f) Subcontracting. (i) At the time of application and each recertification, a concern must certify that it will comply with the applicable limitations on subcontracting requirements in connection with any HUBZone contract it receives ( see §§ 125.6 and 126.700).

(ii) In connection with a HUBZone contract, certified HUBZone small business concerns also agree to comply with the limitations on subcontracting requirements under FAR clause 52.219-14 by submitting an offeror for and executing a HUBZone contract.

(g) Suspension and Debarment. At the time of application and at all times while a concern is HUBZone-certified, such concern and any of its owners must not have an active exclusion in SAM.

(h) Federal financial obligations. A business concern is ineligible to be certified as a HUBZone small business concern or to participate in the HUBZone program if either the concern or any of its principals has failed to pay significant financial obligations owed to the Federal Government, including unresolved tax liens and defaults on Federal loans or other Federally assisted financing. However, a small business concern may be eligible if the concern or the affected principals can demonstrate that they are current on an approved repayment plan, or the financial obligations owed have been settled and discharged/forgiven by the Federal Government.

44. Amend § 126.201 by revising the section heading, and the first sentence of the introductory text to read as follows:

For purposes of qualifying for HUBZone certification, SBA considers any person who owns any legal or equitable interest in a concern to be an owner of the concern. * * *

45. Amend § 126.202 by removing the word “SBC” in the section heading and in the first sentence and adding in its place the words “small business concern”, and removing the third and fourth sentences.

46. Amend § 126.204 by:

a. Revising paragraph (a);

b. Removing the words “all information” in the introductory text of paragraph (c) and adding in their place the words “the totality of circumstances”;

c. Revising paragraph (c)(3); and

d. Adding paragraph (c)(4).

The revisions and addition read as follows:

(a) A HUBZone small business concern may have affiliates, provided that the HUBZone small business concern, together with its affiliates, qualifies as a small business concern as defined in part 121 of this chapter under the size standard corresponding to any NAICS code listed in its profile in SAM.

(3) Minimal business activity between the concern and its affiliate alone will not result in an affiliate's employees being counted as employees of the HUBZone applicant or HUBZone small business concern.

(4) SBA will not treat the employees of one company as employees of another for HUBZone program purposes if the two firms would not be considered affiliated for size purposes under Part 121 of this chapter.

Example 1 to paragraph (c): X owns 100% of Company A and 51% of Company B. Based on X's common ownership of A and B, the two companies are affiliated under SBA's size regulations. SBA will look at the totality of circumstances to determine whether it would be reasonable to treat the employees of B as employees of A for HUBZone program purposes. If both companies do construction work and share office space and equipment, then SBA would find that there is not a clear line of fracture between the two concerns and would treat the employees of B as employees of A for HUBZone ( print page 68311) program purposes. In order to be eligible for the HUBZone program, at least 35% of the combined employees of A and B must reside in a HUBZone.

47. Amend § 126.302 by removing the last sentence.

48. Revise § 126.303 to read as follows:

A concern seeking certification as a HUBZone small business concern must submit an electronic application to SBA's HUBZone Program Office via SBA's web page at www.SBA.gov . The majority owner must take responsibility for the accuracy of all information submitted on behalf of the applicant.

49. Amend § 126.304 by revising paragraph (e) to read as follows:

(e) Records maintenance. (1) HUBZone small business concerns must retain documentation demonstrating satisfaction of all qualifying requirements for 6 years from the date of submission of all initial and continuing eligibility actions.

(2) HUBZone small business concerns must retain documentation related to “Legacy HUBZone employees,” as described in § 126.200(d)(3).

50. Amend § 126.306 by:

a. Revising paragraph (d);

b. Removing the words “System for Award Management” in paragraph (g) and adding in their place the word “SAM”; and

c. Adding paragraph (h).

The revision and addition read as follows:

(d) An applicant must be eligible as of the date SBA issues a decision.

(h) The D/HUB's decision is the final agency decision.

51. Amend § 126.308 by removing the words “System for Award Management” in paragraph (b) and adding in their place the word “SAM”.

52. Revise § 126.309 to read as follows:

(a) A concern that SBA has declined may apply for certification after ninety (90) calendar days from the date of decline if it believes that it has overcome all reasons for decline through changed circumstances and is currently eligible.

(b) A concern that SBA has decertified may apply for certification immediately after the date of decertification, if it believes that it has overcome all reasons for decertification through changed circumstances and is currently eligible.

(c) A concern that voluntarily withdraws from the HUBZone program may immediately re-apply for certification, if it believes that it is currently eligible.

53. Revise § 126.401 to read as follows:

A program examination is an investigation by SBA officials, which verifies the accuracy of any certification made or information provided as part of the HUBZone application process, as part of the recertification process, or in connection with a HUBZone contract.

54. Amend § 126.403 by revising paragraphs (a) and (b) to read as follows:

(a) SBA will determine the scope of a program examination and may review any information related to the concern's HUBZone eligibility including, but not limited to, documentation related to the concern's size, principal office, ownership, compliance with the 35% HUBZone residency requirement, and compliance with the “attempt to maintain” ( see § 126.103) requirement. A representative from SBA may visit one or more of a concern's offices as part of a program examination.

(b) SBA may require that a HUBZone small business concern submit additional information as part of the program examination. If SBA requests additional information, SBA will presume that written notice of the request was provided when SBA sends such request to the concern at an email address provided in the concern's profile in DSBS or SAM.gov (or successor systems). The burden of proof to demonstrate eligibility is on the concern. If a concern does not provide requested information within the allotted time provided by SBA, or if it submits incomplete information, SBA may draw an adverse inference and presume that the information that the concern failed to provide would demonstrate ineligibility and decertify the concern (or deny certification) on this basis.

55. Amend § 126.404 by revising paragraphs (b) and (c) to read as follows:

(b) If the D/HUB (or designee) determines that the concern is eligible, SBA will send a written notice to the HUBZone small business concern and continue to designate the concern as a certified HUBZone small business concern in DSBS (or successor system).

(c) If the D/HUB (or designee) determines that the concern is not eligible, the firm will be suspended from the HUBZone program. The concern will have 30 calendar days to submit sufficient documentation showing that it was in fact eligible on the date of review. During the suspension period, such concern may not compete for or be awarded a HUBZone contract and must provide written notice of the concern's ineligibility to the contracting officer for any pending HUBZone award. If such concern fails to submit documentation sufficient to demonstrate its eligibility, the concern will be decertified. If SBA overturns its determination, SBA will reverse the firm's decertification and reinstate its certification.

56. Revise § 126.500 to read as follows:

(a) Recertification. (1) Any concern seeking to remain a certified HUBZone small business concern in DSBS (or successor system) must recertify to SBA that it continues to meet all HUBZone eligibility criteria ( see § 126.200) every three years. In order to recertify—

(i) A certified HUBZone small business concern that was not awarded a HUBZone contract during the 12-month period preceding its recertification must represent that, at the time of its recertification, at least 35% of its employees reside in HUBZones and the concern's principal office is located in a HUBZone.

(ii) A certified HUBZone small business concern that was awarded a HUBZone contract during the 12-month period preceding its recertification must represent that, at the time of its recertification, it is attempting to maintain compliance with the 35% HUBZone residency requirement and the concern's principal office is located in a HUBZone.

(2) The concern's recertification must be submitted in the 90 calendar days before the triennial anniversary of its HUBZone certification date. ( print page 68312)

(3) If a concern fails to recertify, SBA will propose the concern for decertification pursuant to § 126.503.

(b) Program examinations. SBA will conduct program examinations of certified HUBZone small business concerns to ensure continued program eligibility using a risk-based analysis to select which concerns are examined.

57. Revise § 126.501 to read as follows:

(a) A certified HUBZone small business concern that acquires, is acquired by, or merges with another business entity must provide evidence to SBA, within 30 calendar days of the transaction becoming final, that the concern continues to meet the HUBZone eligibility requirements. A concern that no longer meets the requirements may voluntarily withdraw from the program or it will be removed by SBA pursuant to program decertification procedures.

(b) A certified HUBZone small business concern that is performing a HUBZone contract and fails to “attempt to maintain” the minimum employee HUBZone residency requirement ( see § 126.103) must notify SBA notify SBA via email to [email protected] within 30 calendar days of such occurrence. A concern that cannot meet the requirement may voluntarily withdraw from the program or it will be removed by SBA pursuant to program decertification procedures.

58. Amend § 126.502 by removing the words “§§ 126.200, 126.500, and 126.501” and adding in their place the words “§§ 126.200, 126.500, and 126.501, and all other requirements described in this part”.

59. Amend § 126.503 by:

a. Revising paragraphs (a) and (c);

b. Redesignating paragraph (d) as paragraph (e); and

c. Adding new paragraph (d).

(a) Proposed decertification. If SBA is unable to verify a certified HUBZone small business concern's eligibility or has information indicating that a concern may not meet the eligibility requirements of this part, SBA may propose decertification of the concern. In addition, if SBA has information indicating that a HUBZone small business concern that is performing a HUBZone contract is not attempting to maintain ( see § 126.103) compliance with the 35% HUBZone residency requirement, SBA will propose the concern for decertification.

(1) Notice of proposed decertification. SBA will notify the HUBZone small business concern in writing that SBA is proposing to decertify it and state the reasons for the proposed decertification. The notice of proposed decertification will notify the concern that it has 30 calendar days from the date it receives the letter to submit a written response to SBA explaining why the proposed ground(s) should not justify decertification. SBA will consider that written notice was provided if SBA sends the notice of proposed decertification to the concern at a mailing address, email address, or fax number provided in the concern's profile in DSBS (or successor system).

(2) Response to notice of proposed decertification. The HUBZone small business concern must submit a written response to the notice of proposed decertification within the timeframe specified in the notice. In this response, the concern must rebut each of the reasons set forth by SBA in the notice of proposed decertification, and where appropriate, the rebuttal must include documents showing that the concern is eligible for the HUBZone program as of the date specified in the notice.

(3) Adverse inference. If a HUBZone small business concern fails to cooperate with SBA or fails to provide the information requested, the D/HUB may draw an adverse inference and assume that the information that the concern failed to provide would demonstrate ineligibility.

(4) SBA's decision. SBA will determine whether the HUBZone small business concern remains eligible for the program within 90 calendar days after receiving all requested information, when practicable. The D/HUB will provide written notice to the concern stating the basis for the determination.

(i) If SBA finds that the concern is not eligible, the D/HUB will decertify the concern and remove its designation as a certified HUBZone small business concern in DSBS (or successor system).

(ii) If SBA finds that the concern is eligible, the concern will continue to be designated as a certified HUBZone small business concern in DSBS (or successor system).

(c) Decertification based on false or misleading information. (1) If SBA discovers that a certified HUBZone small business concern or its representative submitted false, inconsistent, or misleading information, SBA will propose the firm for decertification. In addition, SBA will refer the matter to the SBA Office of Inspector General for review and may request that Government-wide debarment or suspension proceedings be initiated by the agency.

(2) A firm that is decertified from the HUBZone program due to the submission of false or misleading information may be removed from SBA's other small business contracting programs, including the 8(a) Business Development Program, the Women-Owned Small Business (WOSB) Program, the Veteran Small Business Certification (VetCert) Program, and SBA's Mentor-Protégé Program.

(3) A firm that is decertified or terminated from the 8(a) BD Program, the WOSB Program, or the VetCert Program due to the submission of false or misleading information may be decertified from the HUBZone Program.

(4) SBA may require a firm that is decertified or terminated from the HUBZone Program, 8(a) BD Program, the WOSB Program, or the VetCert Program due to the submission of false or misleading information to enter into an administrative agreement with SBA as a condition of admission or re-admission to the HUBZone program.

(d) Decertification due to debarment. If a certified HUBZone small business concern is debarred from federal contracting, SBA will decertify the HUBZone small business concern immediately and change the concern's status in DSBS (or successor system) to reflect that it no longer qualifies as a certified HUBZone small business concern, without first proposing it for decertification.

60. Amend § 126.504 by:

a. Removing the word “or” at the end of paragraph (a)(2);

b. Redesignating paragraph (a)(3) as (a)(4);

c. Adding new paragraph (a)(3);

d. Removing the words “pursuant to § 126.501(b)” in newly redesignated paragraph (a)(4); and

e. Revising paragraph (c).

The additions and revisions read as follows:

(3) Been debarred pursuant to the procedures in FAR 9.4; or

(c)(1) After a concern has been decertified by SBA, it is ineligible for the HUBZone program and may not submit an offer for a HUBZone contract.

(2) As long as a concern was a certified HUBZone small business and met the HUBZone requirements as of the date of its initial offer for a HUBZone contract, it may be awarded a HUBZone contract even if it no longer appears as a certified HUBZone small business concern on DSBS or no longer qualifies as an eligible HUBZone small business on the date of award.

61. Revise § 126.600 to read as follows:

HUBZone contracts are prime contracts awarded to a certified HUBZone small business concern (or a HUBZone joint venture that complies with the requirements of § 126.616), regardless of the place of performance, through any of the following procurement methods:

(a) Sole source awards awarded pursuant to § 126.612 to certified HUBZone small business concerns (or HUBZone joint ventures that comply with the requirements of § 126.616);

(b) Set-aside awards (including partial set-asides and set-aside multiple award contracts) based on competition restricted to certified HUBZone small business concerns;

(c) Awards to certified HUBZone small business concerns (or HUBZone joint ventures that comply with the requirements of § 126.616) through full and open competition after the HUBZone price evaluation preference is applied to an other than small business in favor of a certified HUBZone small business concern (or a HUBZone joint venture that complies with the requirements of § 126.616);

(d) Awards based on a reserve for certified HUBZone small business concerns (or HUBZone joint ventures that comply with the requirements of § 126.616) in an unrestricted solicitation;

(e) Orders awarded to certified HUBZone small business concerns (or HUBZone joint ventures that comply with the requirements of § 126.616) under a multiple award contract that was set-aside for certified HUBZone small business concerns; or

(f) Orders set-aside for certified HUBZone small business concerns (or HUBZone joint ventures that comply with the requirements of § 126.616) under a multiple award contract that was awarded in full and open competition.

62. Amend § 126.601 by revising paragraphs (a) and (b)(1) and adding paragraph (f) to read as follows:

(a) Only certified HUBZone small business concerns are eligible to submit offers for a HUBZone contract or to receive a price evaluation preference under § 126.613.

(i) An offeror on a HUBZone contract must be identified as a certified HUBZone small business concern in DSBS (or successor system) and meet the HUBZone requirements in § 126.200 as of the date it submits its initial offer that includes price.

(ii) For a multiple award contract, where concerns are not required to submit price as part of the offer for the contract, an offeror must be identified as a certified HUBZone small business concern in DSBS (or successor system) and meet the HUBZone requirements in § 126.200 as of the date it submits its initial offer, which may not include price.

(iii) A HUBZone joint venture must have its joint venture agreement in place that complies with the requirements in § 126.616 as of its final offer.

(1) Is a certified HUBZone small business concern in DSBS (or successor system) and meets the HUBZone requirements in § 126.200, including having 35% of its employees residing in HUBZones and having its principal office located in a HUBZone;

(f) In general, an offeror on a HUBZone contract is not required to be HUBZone-certified on the date the contract is awarded. However, for HUBZone sole source contracts, the concern must be a certified HUBZone small business concern and meet the requirements in § 126.200 at the time of award and must qualify as small as of that date under the size standard corresponding to the NAICS code assigned to the procurement.

63. Revise § 126.602 to read as follows:

(a) A certified HUBZone small business concern that has been awarded a HUBZone contract must “attempt to maintain” ( see § 126.103) having 35% of its employees residing in a HUBZone during the performance of any HUBZone contract. If a certified HUBZone small business concern is awarded a HUBZone contract within 12 months prior to the due date for its triennial recertification, then such concern must be attempting to maintain compliance with the 35% HUBZone residency requirement at the time of such recertification. However, such a concern must have at least 35% of its employees residing in HUBZones at the time of each recertification thereafter, even if the concern is still performing that HUBZone contract.

(b) For orders under indefinite delivery, indefinite quantity contracts (including orders under multiple award contracts), a certified HUBZone small business concern must “attempt to maintain” the HUBZone residency requirement during the performance of each order that is set aside for HUBZone small business concerns.

(c) A certified HUBZone small business concern that is tribally-owned, and made the certification in § 126.200(c)(2)(ii) at the time of its HUBZone certification (or at the time of its most recent recertification), must have at least 35% of its employees engaged in performing a HUBZone contract residing within any Indian reservation governed by one or more of the concern's Indian Tribal Government owners, or residing within any HUBZone adjoining any such Indian reservation.

(d) A certified HUBZone small business concern that has less than 20% of its total employees residing in a HUBZone during the performance of a HUBZone contract has failed to attempt to maintain the HUBZone residency requirement. Such failure will result in proposed decertification pursuant to § 126.503.

64. Amend § 126.603 by removing the word “concernwill” and adding in its place the words “concern will”.

65. Amend § 126.604 by removing the words “makes this decision” and adding in their place the words “determines if a contract opportunity for HUBZone set-aside competition exists”.

66. Amend § 126.605 by removing the word “may” in the introductory text and adding in its place the word “shall”.

67. Amend § 126.607 by:

a. Removing the word “must” in the section heading and adding in its place the word “may”; ( print page 68314)

b. Removing the words “SDVO SBC” wherever they appear in paragraphs (b)(1) and (b)(2) and adding in their place the words “Veteran Small Business Certification”; and

c. Removing the words “qualified HUBZone SBCs” in paragraph (c)(1) and adding in their place the words “certified HUBZone small business concerns”.

68. Amend § 126.612 by:

a. Revising the section heading;

b. Removing the word “and” at the end of paragraph (d);

c. Removing the punctuation mark “.” at the end of paragraph (e) and adding in its place the text “; and”; and

d. Adding paragraph (f).

(f) The intended awardee is a certified HUBZone small business concern at the time of its initial offer and on the date of award.

69. Amend § 126.613 by revising paragraph (a) and adding a paragraph heading in paragraph (b).

(a) In general. (1) Where a CO will award a contract on the basis of full and open competition, the CO must deem the price offered by a certified HUBZone small business concern to be lower than the price offered by an offeror that is not a small business concern if: the large business initially is the lowest responsive and responsible offeror, and the price offered by the certified HUBZone small business concern is not more than 10% higher than the price offered by the large business.

(2) The HUBZone price evaluation preference does not apply where the initial lowest responsive and responsible offeror is a small business concern.

(3) The HUBZone price evaluation preference does not apply if the certified HUBZone small business concern will receive the contract as part of a reserve for certified HUBZone small business concerns.

(4) To apply the HUBZone price evaluation preference, the CO must add 10% to the offer of the otherwise successful large business offeror. If the certified HUBZone small business concern's offer is lower than that of the large business after the preference is applied, the certified HUBZone small business concern must be deemed the lowest-priced offeror. For a best value procurement, the CO must first apply the 10% price preference to the offers of any large businesses and then determine which offeror represents the best value to the Government, in accordance with the terms of the solicitation. Where, after considering the price evaluation adjustment, the price offered by a certified HUBZone small business concern is equal to the price offered by a large business (or, in a best value procurement, the total evaluation points received by a certified HUBZone small business concern is equal to or greater than the total evaluation points received by a large business), award shall be made to the certified HUBZone small business concern.

Example 1 to paragraph (a): In a full and open competition, a certified HUBZone small business concern submits an offer of $98, a non-HUBZone small business concern submits an offer of $95, and a large business submits an offer of $93. The initial lowest, responsive, responsible offeror is the large business. The CO must then apply the HUBZone price evaluation preference because an offer was received from a certified HUBZone small business concern. After the application of the price preference, the HUBZone small business concern's offer is considered to be lower than the offer of the large business ( i.e., $98 is lower than $102.3 ($93 × 110%)). Since the certified HUBZone small business concern's offer is not more than 10% higher than the large business' offer, the certified HUBZone small business concern displaces the large business as the lowest, responsive, and responsible offeror. The non-HUBZone small business concern is unaffected by the preference because it was not the lowest offeror prior to the application of the preference.

Example 2 to paragraph (a): In a full and open competition, a certified HUBZone small business concern submits an offer of $103, a non-HUBZone small business concern submits an offer of $100, and a large business submits an offer of $93. The initial lowest responsive and responsible offeror is the large business. The CO must then apply the HUBZone price evaluation preference. After the application of the price preference, the HUBZone small business concern's offer is not lower than the offer of the large business ( i.e., $103 is not lower than $102.3 ($93 × 110%)). Since the certified HUBZone small business concern's offer is more than 10% higher than the large business' offer, the certified HUBZone small business concern does not displace the large business as the lowest offeror. In addition, the non-HUBZone small business concern's offer at $100 does not displace the large business' offer because a price evaluation preference is not applied to change an offer and benefit a non-HUBZone small business concern.

Example 3 to paragraph (a): In a full and open competition, a certified HUBZone small business concern submits an offer of $98, a large business submits an offer of $95, and a non-HUBZone small business concern submits an offer of $93. The CO would not apply the price evaluation preference in this procurement because the lowest, responsive, responsible offeror is a small business concern.

Example 4 to paragraph (a): In a full and open competition, a certified HUBZone small business concern submits an offer of $98 and a large business submits an offer of $93. The contracting officer has stated in the solicitation that one contract will be reserved for a certified HUBZone small business concern. The contracting officer would not apply the price evaluation preference when determining which HUBZone small business concern would receive the contract reserved for HUBZone small business concerns but would apply the price evaluation preference when determining the awardees for the non-reserved portion.

(b) Agricultural commodities. * * *

70. Revise § 126.615 to read as follows:

Except as provided in §§ 126.618 and 125.9, a large business may not participate as a prime contractor on a HUBZone award but may participate as a subcontractor to a certified HUBZone small business concern, subject to the limitations on subcontracting set forth in § 125.6.

71. Amend § 126.616 by revising paragraphs (a)(1) and (e)(1)(i), and adding paragraph (l) to read as follows:

(1) SBA does not certify HUBZone joint ventures, but the joint venture should be designated as a HUBZone joint venture in SAM.gov (or successor system) with the HUBZone-certified joint venture partner identified.

(1) * * * ( print page 68315)

(i) It is a certified HUBZone small business concern that appears in DSBS (or successor system) as a certified HUBZone small business concern and it meets the eligibility requirements in § 126.200;

(l) For a procuring agency to receive HUBZone credit for goaling purposes, the joint venture awardee must comply with the requirements of this section and § 125.8.

72. Revise § 126.619 to read as follows:

A prime contractor that receives an award as a certified HUBZone small business concern must comply with the recertification requirements set forth in § 125.12 of this chapter regarding its status as a certified HUBZone small business.

73. Revise the subpart heading for subpart G to read as follows:

74. Amend § 126.701 by:

a. Removing the words “these subcontracting percentages” in the section heading and adding in their place the words “the limitations on subcontracting”.

b. Removing the words “the subcontracting percentage” in the paragraph and adding in their place the words “the limitations on subcontracting”.

75. Revise § 126.800 to read as follows:

(a) For a HUBZone sole source procurement, SBA or the contracting officer may protest the intended awardee's status as a certified HUBZone small business concern.

(b) For HUBZone contracts other than sole source procurements, including multiple award contracts ( see § 125.1 of this chapter), SBA, the contracting officer, or any other interested party may protest the apparent successful offeror's status as a certified HUBZone small business concern (or the HUBZone joint venture offeror's compliance with § 126.616).

(c) For contracts other than HUBZone contracts, SBA may protest an apparent successful offeror's status as a certified HUBZone small business concern.

76. Amend § 126.801 by:

a. Removing the words “should not qualify” in the introductory text to paragraph (b)(1) and adding in their place the words “did not qualify”;

b. Removing the words “, on the anniversary date of its initial HUBZone certification,” in paragraph (b)(1)(iv); and

c. Removing the words “at the time the concern applied for certification or on the anniversary of such certification” in paragraph (b)(3)(i) and adding in their place the words “at the time of offer”.

77. Amend § 126.803 by:

b. Redesignating paragraphs (c), (d), and (e) as paragraphs (d), (e), and (f), respectively;

c. Adding new paragraph (c); and

d. Revising newly redesignated paragraph (f)(3).

(a) Date at which eligibility determined. (1) For competitively awarded HUBZone contracts, SBA will determine the eligibility of a concern subject to a HUBZone status protest as of the date of its initial offer that includes price. For sole source HUBZone contracts, SBA will determine the eligibility of a concern subject to a HUBZone status protest as of the date of the award or intended award.

(2) For protests filed against a HUBZone joint venture alleging that the joint venture does not comply with the requirements in § 126.616, SBA will determine the eligibility of the joint venture as of its final offer for the procurement.

(3) For protests alleging undue reliance on one or more non-HUBZone subcontractors or alleging that such subcontractor(s) will perform the primary and vital requirements of the contract, SBA will determine the HUBZone small business concern's eligibility as of the date of its final offer for the procurement.

(c) Burden of proof. In the event of a protest, the burden of proof to demonstrate eligibility is on the protested concern. If a concern does not provide requested information within the allotted time provided by SBA, or if it submits incomplete information, SBA may draw an adverse inference and presume that the information that the concern failed to provide would demonstrate ineligibility and sustain the protest on that basis.

(3) A concern found to be ineligible may apply for HUBZone certification immediately after its decline if it believes that it has overcome all reasons for ineligibility through changed circumstances and is currently eligible.

78. Amend § 126.900 by:

a. Removing the word “SBCs” in paragraphs (a) and (b)(1) and adding in its place the phrase “small business concerns”;

b. Removing the word “SBC” in paragraphs (a), (b)(2), (b)(3), (d), and (e)(1) and adding in its place the phrase “small business concern”;

c. Removing the word “SBC” in the introductory text of paragraph (b) and in paragraph (c);

d. Removing the phrase “agency suspension” in paragraph (e)(1) and adding in its place the phrase “procuring agency's suspension”;

e. Adding paragraph (e)(4).

The addition reads as follows:

(4) If SBA discovers that false or misleading information has been knowingly submitted by a certified small business concern in order to obtain or maintain HUBZone certification, the D/HUB will propose the firm for decertification.

79. The authority citation for part 127 continues to read as follows:

Authority: 15 U.S.C. 632 , 634(b)(6) , 637(m) , 644 and 657r .

80. Amend § 127.200 by:

a. Revising paragraphs (a)(2) and (b)(2);

b. Redesignating paragraph (d) as paragraph (f); and

c. Adding new paragraphs (d) and (e).

(2) Not less than 51 percent unconditionally and directly owned and controlled by one or more economically disadvantaged women who are citizens of and reside in the United States.

(2) Not less than 51 percent unconditionally and directly owned and controlled by one or more women who ( print page 68316) are citizens of and reside in the United States.

(d) Size. In determining whether a concern qualifies as small under the size standard corresponding to a specific NAICS code, SBA will accept the concern's size representation in the System for Award Management ( SAM.gov ), or successor system, unless there is evidence indicating that the concern is other than small. SBA will request a formal size determination pursuant to § 121.1001(b)(7) of this chapter where any information it possesses calls into question the concern's SAM.gov size representation.

(e) Federal financial obligations. A business concern is ineligible to be certified as a WOSB or EDWOSB or to participate in the WOSB program if either the concern or any of its principals has failed to pay significant financial obligations owed to the Federal Government, including unresolved tax liens and defaults on Federal loans or other Federally assisted financing. However, a small business concern may be eligible if the concern or the affected principals can demonstrate that they are current on an approved repayment plan, or the financial obligations owed have been settled and discharged/forgiven by the Federal Government.

81. Amend § 127.201 by revising paragraph (b) and adding paragraph (g) to read as follows:

(b) Unconditional ownership. To be considered unconditional, ownership must not be subject to any conditions, executory agreements, voting trusts, restrictions on or assignments of voting rights, or other arrangements causing or potentially causing ownership benefits to go to another (other than after death or incapacity).

(1) The pledge or encumbrance of stock or other ownership interest as collateral, including seller-financed transactions, does not affect the unconditional nature of ownership if the terms follow normal commercial practices and the owner retains control absent violations of the terms.

(2) In determining unconditional ownership, SBA will disregard any unexercised stock options or similar agreements held by qualifying women. However, any unexercised stock options or similar agreements (including rights to convert non-voting stock or debentures into voting stock) held by men or other entities will be treated as exercised, except for any ownership interests which are held by investment companies licensed under 15 U.S.C. 681 et. seq.

(3) A right of first refusal granting a man or other entity the contractual right to purchase the ownership interests of the qualifying woman, does not affect the unconditional nature of ownership, if the terms follow normal commercial practices. If those rights are exercised by a man or other entity after certification, the WOSB/EDWOSB must notify SBA. If the exercise of those rights results in qualifying women owning less than 51% of the concern, SBA will initiate decertification pursuant to § 127.405.

(g) Dividends and distributions. One or more qualifying women must be entitled to receive:

(1) At least 51 percent of any distribution of profits paid to the owners of a corporation, partnership, or limited liability company concern, and a qualifying woman's ability to share in the profits of the concern must be commensurate with the extent of her ownership interest in that concern;

(2) 100 percent of the value of each share of stock owned by them in the event that the stock is sold; and

(3) At least 51 percent of the retained earnings of the concern and 100 percent of the unencumbered value of each share of stock or member interest owned in the event of dissolution of the corporation, partnership, or limited liability company.

82. Amend § 127.202 by revising paragraphs (d) and (g) and adding paragraph (h) to read as follows:

(d) Ownership of a partnership. In the case of a concern which is a partnership, one or more qualifying women, or in the case of an EDWOSB, economically disadvantaged women, must serve as general partners, with control over all partnership decisions. At least 51 percent of every class of partnership interest must be unconditionally owned by one or more qualifying women or economically disadvantaged women. The ownership must be reflected in the concern's partnership agreement.

(g) Involvement in the concern by other individuals or entities. Men or other entities may be involved in the management of the concern and may be stockholders, partners or limited liability members of the concern. However, no males or other entities may:

(1) Exercise actual control or have the power to control the concern;

(2) Have business relationships that cause such dependence that the qualifying woman cannot exercise independent business judgment without great economic risk;

(3) Control the concern through loan arrangements (which does not include providing a loan guaranty on commercially reasonable terms);

(4) Provide critical financial or bonding support or a critical license to the concern, which directly or indirectly allows the male or other entity to significantly influence business decisions of the qualifying woman.

(5) Be a former employer, or a principal of a former employer, of any qualifying woman, unless the concern demonstrates that the relationship between the former employer or principal and the qualifying woman does not give the former employer actual control or the potential to control the concern and such relationship is in the best interests of the concern; or

(6) Receive compensation from the concern in any form as a director, officer, or employee, that exceeds the compensation to be received by the qualifying woman who holds the highest officer position (usually Chief Executive Officer or President), unless the concern demonstrates that the compensation to be received by non-qualifying woman is commercially reasonable or that the qualifying woman has elected to take lower compensation to benefit the concern.

(h) Exception for extraordinary circumstances. SBA will not find that a lack of control exists where a woman or an economically disadvantaged woman does not have the unilateral power and authority to make decisions regarding the following extraordinary circumstances:

83. Amend § 127.301 by removing the last sentence.

84. Revise § 127.302 to read as follows:

A concern seeking certification as a WOSB or EDWOSB must submit an ( print page 68317) electronic application to SBA via www.certify.sba.gov or any successor system. The majority woman or economically disadvantaged woman owner must take responsibility for the accuracy of all information submitted on behalf of the applicant.

85. Amend § 127.304 by revising paragraph (d) to read as follows:

86. Revise § 127.305 to read as follows:

(a) A concern that SBA or a third-party certifier has declined may apply for certification after ninety (90) calendar days from the date of decline if it believes that it has overcome all of the reasons for decline and is currently eligible. A concern that has been declined may seek certification by any of the certification options listed in § 127.300.

(c) A concern that voluntarily withdraws from the WOSB program may immediately apply for certification, if it believes that it is currently eligible.

87. Amend § 127.400 by revising paragraph (b) to read as follows:

(b) The concern must either recertify with SBA or notify SBA that it has completed a program examination from a third party certifier in the 90 calendar days prior to its certification anniversary. Failure to do so will result in the concern being decertified.

Example 1 to paragraph (b). Concern B is certified by a third-party certifier to be eligible for the WOSB Program on July 20, 2024. Concern B is considered a certified WOSB that is eligible to receive WOSB contracts (as long as it is small for the size standard corresponding to the NAICS code assigned to the contract) through July 19, 2027. Concern B must request a program examination from SBA or notify SBA that it has completed a program examination from a third-party certifier, by April 21, 2027, to continue participating in the WOSB Program after July 19, 2027.

88. Amend § 127.405 by redesignating paragraph (f) as paragraph (g) and adding new paragraph (f) to read as follows:

(f) Decertification based on false or misleading information. (1) A firm that is decertified from the WOSB program due to the submission of false or misleading information may be removed from SBA's other small business contracting programs, including the 8(a) Business Development Program, the HUBZone Program, the Veteran Small Business Certification (VetCert) Program, and SBA's Mentor-Protégé Program.

(2) A firm that is decertified or terminated from the 8(a) BD Program, the HUBZone Program, or the VetCert Program due to the submission of false or misleading information may be decertified from the WOSB Program.

(3) SBA may require a firm that is decertified or terminated from the WOSB Program, 8(a) BD Program, the HUBZone Program, or the VetCert Program due to the submission of false or misleading information to enter into an administrative agreement with SBA as a condition of admission or re-admission to the WOSB program.

89. Amend § 127.504 by:

b. Removing the words “under paragraph (f) of this section” in paragraph (d)(1) and adding in their place the words “under § 125.12 of this chapter”; and

c. Revising paragraph (h).

(a) General. In order for a concern to submit an offer on a specific EDWOSB or WOSB set-aside requirement, the concern must, at the time of its initial offer that includes price:

(1) Qualify as a small business concern under the size standard corresponding to the NAICS code assigned to the contract;

(2) Meet the eligibility requirements of an EDWOSB or WOSB in § 127.200; and

(3) Either be a certified EDWOSB or WOSB pursuant to § 127.300, or represent that the concern has submitted a complete application for WOSB or EDWOSB certification to SBA or a third-party certifier and has not received a negative determination regarding that application from SBA or the third party certifier.

(i) If a concern becomes the apparent successful offeror while its application for WOSB or EDWOSB certification is pending, either at SBA or a third-party certifier, the contracting officer for the particular contract must immediately inform SBA's D/GC. SBA will then prioritize the concern's WOSB or EDWOSB application and make a determination regarding the firm's status as a WOSB or EDWOSB within 15 calendar days from the date that SBA received the contracting officer's notification. Where the application is pending with a third-party certifier, SBA will immediately contact the third-party certifier to require the third-party certifier to complete its determination within 15 calendar days.

(ii) If the contracting officer does not receive an SBA or third-party certifier determination within 15 calendar days after the SBA's receipt of the notification, the contracting officer may presume that the apparently successful offeror is not an eligible WOSB or EDWOSB and may make award accordingly, unless the contracting officer grants an extension to the 15-day response period.

(h) Recertification. A prime contractor that receives an award as a certified WOSB or EDWOSB must comply with the recertification requirements set forth in § 125.12 of this chapter regarding its status as a certified WOSB or EDWOSB.

90. The authority citation for part 128 continues to read as follows:

Authority: 15 U.S.C. 632(q) , 634(b)(6) , 644 , 645 , 657f , 657f-1 .

91. Amend § 128.100 by removing the words “Veteran Small Business Certification Program” and adding in their place the words “Veteran Small Business Certification Program (VetCert)”.

92. Amend § 128.200 by revising paragraphs (a)(2) and (b)(2) to read as follows:

(2) Not less than 51 percent owned and controlled by one or more veterans who reside in the United States.

(2) Not less than 51 percent owned and controlled by one or more service-disabled veterans who reside in the United States or, in the case of a veteran with a disability that is rated by the Secretary of Veterans Affairs as a permanent and total disability who are unable to manage the daily business operations of such concern, the spouse or permanent caregiver of such veteran who resides in the United States.

93. Amend § 128.201 by revising paragraph (b) to read as follows:

(b) Federal financial obligations. A business concern is ineligible to be certified as a VOSB or SDVOSB or to participate in the VetCert program if either the concern or any of its principals has failed to pay significant financial obligations owed to the Federal Government, including unresolved tax liens and defaults on Federal loans or other Federally assisted financing. However, a small business concern may be eligible if the concern or the affected principals can demonstrate that they are current on an approved repayment plan, or the financial obligations owed have been settled and discharged/forgiven by the Federal Government.

94. Amend § 128.202 by revising paragraph (c) and removing the words “the annual distribution” in paragraph (g) and adding in their place the words “any distribution” to read as follows:

(c) Ownership of a partnership. In the case of a concern which is a partnership, one or more qualifying veterans must serve as general partners, with control over all partnership decisions. At least 51 percent of every class of partnership interest must be unconditionally owned by one or more qualifying veterans. The ownership must be reflected in the concern's partnership agreement.

95. Amend § 128.203 by:

a. Removing the second and third sentences in paragraph (f);

b. Revising paragraphs (g) and (h);

c. Removing the word “and” at the end of paragraph (j)(4);

d. Removing the punctuation mark “.” at the end of paragraph (j)(5) and adding in its place the text “; and”; and

e. Adding paragraph (j)(6).

(g) Unexercised rights. Except as set forth in paragraph (e)(1) of this section, a qualifying veteran's unexercised right to cause a change in the control or management of the concern does not in itself constitute control, regardless of how quickly or easily the right could be exercised.

(h) Limitations on control by non-qualifying-veterans. Non-qualifying-veterans may be involved in the management of the concern and may be stockholders, partners or limited liability members of the concern. However, no non-qualifying veteran may:

(2) Have business relationships that cause such dependence that the qualifying veteran cannot exercise independent business judgment without great economic risk;

(4) Provide critical financial or bonding support or a critical license to the concern, which directly or indirectly allows the non-qualifying veteran to significantly influence business decisions of the qualifying veteran.

(5) Be a former employer, or a principal of a former employer, of any qualifying veteran, unless the concern demonstrates that the relationship between the former employer or principal and the qualifying veteran does not give the former employer actual control or the potential to control the concern and such relationship is in the best interests of the concern; or

(6) Receive compensation from the concern in any form as a director, officer, or employee, that exceeds the compensation to be received by the qualifying veteran who holds the highest officer position (usually Chief Executive Officer or President), unless the concern demonstrates that the compensation to be received by non-qualifying veteran is commercially reasonable or that the qualifying veteran has elected to take lower compensation to benefit the concern.

96. Amend § 128.204 by revising paragraph (a) to read as follows:

(a) Time of certification. At the time of certification or recertification, a VOSB or SDVOSB must be a small business under the size standard corresponding to any NAICS code listed in its System for Award Management ( SAM.gov ), or successor system, profile. In determining whether a concern applying to be certified as a VOSB or SDVOSB qualifies as small under the size standard corresponding to a specific NAICS code, SBA will accept the concern's size representation in SAM, unless there is evidence indicating that the concern is other than small. SBA will request a formal size determination pursuant to § 121.1001(b)(12) of this chapter where any information it possesses calls into question the concern's SAM.gov size representation.

97. Revise § 128.301 to read as follows:

An application for certification as a VOSB or SDVOSB must be electronically filed according to the instructions on SBA's website at www.sba.gov . The qualifying veteran must take responsibility for the accuracy of all information submitted on behalf of the applicant.

98. Amend § 128.302 by:

a. Adding a sentence to the end of paragraph (a); and

b. Removing from the introductory text to paragraph (d) the text “any independent research conducted by SBA,”.

(a) * * * An applicant must be eligible as of the date SBA issues a decision.

99. Revise § 128.305 to read as follows:

(a) A concern that SBA has declined may apply for certification after ninety (90) calendar days from the date of decline, if it believes that it has overcome all of the reasons for decline and is currently eligible.

(c) A concern that voluntarily withdraws from the VetCert program may immediately apply for certification, if it believes that it is currently eligible.

100. Amend § 128.306 by removing the text “120 calendar days” from paragraph (a) and adding, in its place, the text “the 90 calendar days”.

101. Amend § 128.309 by removing the third and fourth sentences of paragraph (a), the second and third sentences of paragraph (b), and the second and third sentences of paragraph (c).

102. Amend § 128.310 by adding paragraph (g) to read as follows:

(g) Decertification based on false or misleading information. (1) A firm that is decertified from the VetCert Program due to the submission of false or misleading information may be removed from SBA's other small business contracting programs, including the 8(a) Business Development Program, the HUBZone Program, the Women-Owned Small Business (WOSB) Program, and SBA's Mentor-Protégé Program.

(2) A firm that is decertified or terminated from the 8(a) BD Program, the HUBZone Program, or the WOSB Program due to the submission of false or misleading information may be decertified from the VetCert Program.

(3) SBA may require a firm that is decertified or terminated from the VetCert Program, the 8(a) BD Program, the HUBZone Program, or the WOSB Program due to the submission of false or misleading information to enter into an administrative agreement with SBA as a condition of admission or re-admission to the VetCert program.

103. Amend § 128.401 by:

b. Removing the words “under paragraph (e) of this section” in paragraph (d)(1)(i) and adding in their place the words “under § 125.12 of this chapter”; and

c. Revising paragraph (e).

(a) Certification requirement. Only certified VOSBs and SDVOSBs are eligible to submit an offer on a specific VOSB or SDVOSB requirement. For a competitively awarded VOSB/SDVOSB contract, order, or agreement, the concern must qualify as a small business concern under the size standard corresponding to the NAICS code assigned to the contract, order or agreement, and be a certified VOSB or SDVOSB and meet the eligibility requirements of a VOSB or SDVOSB in § 128.200 at the time of initial offer or response which includes price. For any sole source VOSB or SDVOSB award, the concern must qualify as a small business concern under the size standard corresponding to the applicable NAICS code, and be a certified VOSB or SDVOSB and meet the eligibility requirements of a VOSB or SDVOSB in § 128.200 on the date of award.

(e) Recertification. A prime contractor that receives an award as a certified SDVOSB must comply with the recertification requirements set forth in § 125.12 of this chapter regarding its status as a certified SDVOSB.

104. Amend § 128.402 by revising the second sentence of the introductory text of paragraph (a) and adding paragraph (k) to read as follows:

(a) * * * SBA does not certify VOSB or SDVOSB joint ventures, but the joint venture should be designated as a VOSB or SDVOSB joint venture in SAM.gov with the VOSB or SDVOSB-certified joint venture partner identified. * * *

(k) For a procuring agency to receive VOSB or SDVOSB credit for goaling purposes, the joint venture awardee must comply with the requirements of this section and § 125.8.

105. Amend § 128.500 by removing the text “128.402(c)” in paragraph (c) and adding in its place “128.402”.

106. The authority citation for part 134 continues to read as follows:

Authority: 5 U.S.C. 504 ; 15 U.S.C. 632 , 634(b)(6) , 634(i) , 637(a) , 648(l) , 656(i) , 657t and 687(c) ; E.O. 12549 , 51 FR 6370 , 3 CFR , 1986 Comp., p. 189.

Subpart J issued under 15 U.S.C. 657f .

Subpart K issued under 15 U.S.C. 657f .

Subpart L issued under 15 U.S.C. 636(a)(36) ; Pub. L. 116-136 , 134 Stat. 281; Pub. L. 116-139 , 134 Stat. 620; Pub. L. 116-142 , 134 Stat. 641; and Pub. L. 116-147 , 134 Stat. 660.

Subpart M issued under 15 U.S.C. 657a ; Pub. L. 117-81 , 135 Stat. 1541.

107. Amend § 134.1003 by revising the first sentence of paragraph (e)(1) to read as follows:

(1) If the VOSB or SDVOSB status protest pertains to a procurement, the Judge will determine a protested concern's eligibility as a VOSB or SDVOSB as of the date of its initial offer or response which includes price for a competitively awarded VOSB/SDVOSB contract, order, or agreement, and as of the date of award for any sole source VOSB or SDVOSB award. * * *

108. Amend § 134.1104 by removing the words “10 business days” in paragraph (a) and adding in their place the words “45 business days”.

Isabella Casillas Guzman,

Administrator.

1. Investigating Prisoner Reentry: The Impact of Conviction Status on the Employment Prospects of Young Men. Investigating Prisoner Reentry National Institute of Justice Grant, Final Report., October 2009.

2. Local Labor Markets and Criminal Recidivism, ScienceDirect, Journal of Public Economics, Volume 147, March 2017, Pages 16-29

3. From Prison to Entrepreneurship: Can Entrepreneurship be a Reentry Strategy for Justice-Impacted Individuals? https://doi.org/10.1177/00027162221115378 , Sage Journals, Volume 701, Issue 1, September 14, 2022.

4. The calculation assumes that with triennial recertification, two-thirds of the number of program participants, which is now 3,700 firms, will not recertify each year. Using 3,700 for this calculation, with the value of an hour at $132.46 per hour, which is the mean hourly wage of $66.23 plus 100 percent for overhead and benefits for Management Occupation (from Management Occupations ( bls.gov ), retrieved April 16, 2024), savings for about 2,468 small business is $326,912.

5. The calculation assumes that with triennial recertification, two-thirds of the 10 percent of HUBZone firms that are in WOSB and 15% of the HUBZone firms that are in 8(a) will not engage in program-specific recertification procedures in a given year. A small number of firms participated in all three of these contracting programs. Using the current number of about 3,700 small businesses in the HUBZone program, with the value of an hour at $132.46 per hour, which is the mean hourly wage of $66.23 plus 100 percent for overhead and benefits for Management Occupation (from Management Occupations ( bls.gov ), retrieved April 16, 2024), savings for about 247 small business in HUBZone program and WOSB and 370 small business in HUBZone and 8(a) amounts to $81,728. SBA notes that this would be a low estimate of relief of recertification burden because it does not include HUBZone firms that also participate in other contracting programs like VetCert.

6. This calculation is 2,100 multiplied by the value of an hour of $132.46 per hour, which is the mean hourly wage of $66.23 for Management Occupation (from Management Occupations (bls.gov), retrieved April 16, 2024) plus 100 percent for overhead and benefits.

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Financial Advisor

A Guide To Sole Proprietorship Taxes

Updated: Jul 1, 2022, 1:08pm

Sole proprietorships—run by freelancers, consultants or other independent contractors—typically have simple taxes compared to other business structures. However, there are specific tax guidelines sole proprietors must follow come tax season.

Let’s walk you through sole proprietorship taxes to ensure you make no mistakes when paying Uncle Sam.

What Is a Sole Proprietorship?

A sole proprietorship is owned by one person, and the owner doesn’t have a separate legal existence from the business. As a sole proprietor, you’re entitled to all income; however, you’re also personally liable for any debts and losses incurred.

Similar to partnerships and S-corporations, a sole proprietorship is considered a pass-through entity, which means profits and losses are reported on the owner’s personal income tax return instead of being subject to corporate income taxes.

There are several advantages and disadvantages of a sole proprietorship, including the following:

Advantages of a Sole Proprietorship

Easy to form. A sole proprietor is simple and easy to form. It’s the least expensive of all business structures and doesn’t require complicated paperwork.
Full ownership. Unlike with other business entities, you have complete control of your business, decisions and any profits earned by your sole proprietorship.
Simplified tax reporting. Sole proprietors can report their business income and deductions on their personal income tax returns.

Disadvantages of a Sole Proprietorship

Unincorporated and unlimited liability. Sole proprietorships are typically unincorporated entities, which means they are personally liable for any business debts and other obligations.
Limited funding. It can be difficult for a sole proprietor to obtain funding. Unlike corporations, sole proprietorships can’t raise funds through stock sales, and some banks may provide only limited funding.
Responsible for 100% of losses and debts. While full ownership of a sole proprietorship is an advantage, it also comes with the downside of being fully responsible for losses and debts incurred by your business.

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How to Pay Sole Proprietorship Taxes

Sole proprietorship taxes depend on your net profit (income minus expenses), whether you have employees and if you’re subject to local and state taxes.

Self-employment Taxes

You’re required to pay self-employment taxes on your net profits, which occurs when your business income exceeds your expenses. The self-employment tax rate is 15.3% for 2022, which consists of two parts:

Social Security tax: 12.4%
Medicare tax: 2.9%

For 2022, the first $147,000 of your combined wages, tips and net profits are subject to Social Security taxes, and all of your combined earnings are subject to Medicare taxes. Also, if your combined income exceeds $200,000 for 2022, you’ll pay an additional Medicare tax rate of 0.09%.

Generally, the amount of your net profit subject to the self-employment tax is 92.35%. For example, if you had a net profit of $50,000 from your sole proprietorship, you’ll pay $7,065, which is 15.3% of $46,175 ($50,000 x 92.35%).

There are also some cases where you’re not required to pay self-employment taxes—for example, if your net profits were less than $400 for the taxable year.

Federal and State Income Taxes

In addition to self-employment taxes, you must pay income taxes on your net profits. In some cases, this includes both federal and state taxes, depending on where you live.

The amount of federal income tax you owe depends on the federal income tax bracket you fall in. There are seven federal tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

The state in which you reside or earn your income also determines if you have to pay state income taxes. However, some states, including Washington, Florida and Texas, don’t impose state income taxes.

Employment Taxes

Along with self-employment, federal and state income taxes, if you hire employees for your business, you will pay employment taxes.

Generally, employers must withhold and deposit the following for their employees:

Federal and state income taxes
Federal Insurance Contributions Act (FICA) taxes
Federal Unemployment Tax Act (FUTA) taxes for their employees

You should also note that as a sole proprietor, you can’t treat yourself as an employee of your business.

Tax Deductions for Sole Proprietors

Understanding your deductions is key when you’re a sole proprietor. Since you are only taxed on your net profits, taking advantage of available tax deductions is beneficial.

Common tax deductions for sole proprietors include:

Self-employment taxes
Health care insurance
Business mileage
Business meals at restaurants
Advertising costs
Rent and leasing costs
Home office deduction

It’s always a good idea to speak with a tax professional concerning your sole proprietorship and which deductions are available to you.

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Kemberley Washington is a tax journalist and provides consumer-friendly tax tips for individuals and businesses. Her work goes beyond tax articles. She has been instrumental in tax product reviews and online tax calculators to help individuals make informed tax decisions. Her work has been featured in Yahoo Finance, Bankrate.com, SmartAsset, Black Enterprise, New Orleans Agenda, and more. She frequently appears on NBC's WDSU news broadcast.

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COMMENTS

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We've compiled a list of eight different types of businesses that make good sole proprietorship examples. 1. Freelance Writer. A freelance writer provides written content for clients, either for ...
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Sole Proprietorship Business Plan Example. An example business plan for a sole proprietorship might be a freelance graphic designer. The plan would include a description of the services offered, such as logo design, branding, and marketing materials. The market analysis would identify target clients, such as small businesses and startups, and ...
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Describe Your Services or Products. The business plan should have a section that explains the services or products that you're offering. This is the part where you can also describe how they fit ...
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A business plan for a sole proprietorship must proactively address the challenge of demonstrating that the owner is financially responsible, as well as sufficiently skilled, to ensure that the company will meet its goals. ... For example, if you are writing a business plan for a new restaurant and you have held chef positions at prestigious ...
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The best business plan template for your business is one that you understand and that matches the size and legal structure of your operation. If you're a sole proprietor, a business plan template designed for a big corporation probably doesn't make sense. However, a business plan that helps you build an effective roadmap to grow your ...
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A wide range of businesses operates as sole proprietorships, reflecting the versatility of this business structure. Here are some real-world examples: 1. Independent Contractors and Freelancers. Freelance writers, photographers, graphic designers, and other independent contractors often operate as sole proprietors.
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Here's how to start a sole proprietorship in seven steps: Step 1. Decide on a Business Name. Coming up with a business name can be exciting―it is a representation of you and the product or ...
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A. Sample Business Plan for Sole Proprietorship. As a sole proprietor, your business is owned and operated by you alone. When creating your business plan, focus on your personal goals and objectives for the business, as well as its unique selling proposition. Here are a few key areas to include in your business plan:
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WEBSITE.COM • BUSINESS PLAN 3 1.1 OBJECTIVES The Y1 objectives of WEBSITE.COM are as follows: 1. To build the infrastructure of www.website.com including website design, editorial policy and ... WEBSITE.COM is a sole proprietorship owned by Ms. Smith. Startup funding for WEBSITE.COM in the amount of $ xxxx has been provided by Ms. Smith. It ...
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This will attract customers to come and conduct their parties for example birthday. MARKETING PLAN 2 CUSTOMERS. the business will be located within Nyali beach near the ocean in Mombasa. the targeted customers will be tourists who are visiting Nyali beach and also other people who are near the beach. 2 COMPETITORS. Name of the business. S W O T
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This section outlines the organizational plan for Nachonomics business enterprise. It will operate as a sole proprietorship with unlimited liability for the owner. The organizational structure includes a product manager, bookkeeper and cashier, marketing and promotion manager, production worker, and material collector. It defines the roles and responsibilities of each position and lists their ...
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Table of Contents. A business plan is a document that you create that outlines your company's objectives and how you plan to meet those objectives. Every business plan has key sections such as ...
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The business plan examples in this article follow this template: Executive summary. An introductory overview of your business. Company description. A more in-depth and detailed description of your business and why it exists. ... "Paw Print Post will operate as a sole proprietorship run by the owner, Jane Matthews." ...
Federal Register :: HUBZone Program Updates and Clarifications, and
III, § 303, 102 Stat. 3865 (1988), adopted and expanded SBA's sole source contract acceptance procedures, mandating that SBA shall award a sole source 8(a) contract to the 8(a) firm nominated by the offering agency, provided the following three statutory criteria are met: (i) the Program Participant is determined to be a responsible contractor ...
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Sole proprietors can report their business income and deductions on their personal income tax returns. ... For example, if you had a net profit of $50,000 from your sole proprietorship, you'll ...

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How to Write a Business Plan in 9 Steps (+ Template and Examples)

What Do You Need A Business Plan For?

1. Secure Funds

2. Monitor Business Growth

3. Measure Business Success

4. Document Your Marketing Strategies

How to Write a Business Plan Step-by-Step

2. Add Your Company Overview

Business Objectives

3. Perform Market and Competitive Analyses to Proof a Big Enough Business Opportunity

Market Analysis

Competitive Analysis

4. Define Your Business and Management Structure

Management Team

Key Questions to Answer When Structuring Your Management Team

Additional Tips for Writing the Management Structure Section

Organizational Chart

5. Describe Your Product and Service Offering

What to Focus On When Describing the Benefits, Lifecycle, and Production Process of Your Products or Services

Tips for Writing the Products or Services Section of Your Business Plan

Key Questions to Answer When Writing your Products and Services Section

6. Show and Explain Your Marketing and Sales Plan

Outline Your Business’ Unique Selling Proposition (USP)

Target Market and Target Audience

Creating a Smart Marketing and Sales Plan

Your Positioning Statement

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Strategic Alliances

Steps Involved in Creating a Marketing and Sales Plan

Key Questions to Answer When Writing Your Marketing and Sales Plan

7. Clearly Show Your Funding Request

Funding Request: Debt or Equity?

Additional Tips for Writing the Funding Request Section of your Business Plan

8. Detail Your Financial Plan, Metrics, and Projections

Use Graphs and Charts

Address the Risk Factors and Show Realistic Financial Projections

What You Should In The Financial Plan, Metrics, and Projection Section of Your Business Plan

Key Questions to Answer with Your Financial Plan, Metrics, and Projection

9. Add an Appendix to Your Business Plan

Common Items to Include in the Appendix Section of Your Business Plan

Tips and Strategies for Writing a Convincing Business Plan

1. Know Your Audience

2. Get Inspiration from People

3. Avoid Being Over Optimistic

4. Keep it Simple and Short

5. Make an Outline and Follow Through

6. Ask a Professional to Proofread

Business Plan Examples and Templates That’ll Save You Tons of Time

2. Bplan’s Free Business Plan Template

3. HubSpot's Downloadable Business Plan Template

4. Business Plan by My Own Business Institute

5. Score's Business Plan Template for Startups

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