Like many small businesses, my company has benefitted from working with the Small Business Administration (SBA), particularly the 8(a) development program. This program has undeniably helped my firm – and hundreds like it – but it also comes with a looming challenge: Graduation Day.
Organizations can only spend nine years in the program, a timeframe usually shortened if your firm is lucky enough to exceed employee and/or revenue ceilings. Don’t get me wrong: Experiencing rapid enough growth to leave the 8(a) bubble is a tremendous achievement, but one that comes with its own set of challenges.
Contractors in the program need to prepare for the day they leave, so early preparation is key to continuing the successful journey. What are the critical elements for companies to consider when cycling out of the small business designation? From personal experience, the following are crucial:
- Realize Your Limitations – CEOs who have started their businesses wear many hats and figure things out independently. Business leaders may want to manage this transition themselves. The market has many experts who have already completed this process. Do not be afraid to ask for assistance. Investing in this transition can avoid costly mistakes. For example: What is your exit strategy? Is there an M&A component under consideration? Specialists can help to answer these questions, so consider hiring a consultant to guide you through the process. It is best to start this process about four years to five years out, rather than wait until the final year is right around the corner.
- Budgeting for the Next Phase – As noted, planning is critical. Nowhere is this more apparent than in the budgeting process. I go through the budget at least quarterly to get an idea of where we can and cannot invest going forward. Companies must know how much they can invest, along with where investments provide the most impact. Sometimes high-growth companies can miss out on investments as they don’t realize they can support more than they are currently doing. Working through and continually assessing the company’s indirect budgets allows for midstream adjustments to investment plans that can pay future dividends.
- Recruiting Is Key – Adding new talent to your staff is vital for high-growth companies moving out of a small business designation. Keeping this in mind, be sure to negotiate the correct terms with recruiting firms. For example, if a recruiter charges a 20 percent commission, it may take several years to return a profit on that employee. If the employee does not work out or stays for a short time, it can be a net loss. In addition, the timing associated with “standing up” a full-time recruiting capability is critical. Do it too soon, and the cost could be a burden to the company. Do it too late, and the company may miss good opportunities.
- Continuous Strategy Planning – There are two phases for those in the SBA 8(a) program – Developmental and Transition. Every company involved in the program should refine its goals based on business growth throughout these phases. But it is important to keep refining goals to ensure success after a company leaves the 8a program. This requires discipline as executives are usually busy servicing existing clients and trying to win new ones. However, setting realistic goals based on growth is critical for companies undergoing this transition.
The SBA resources given to small businesses are invaluable. It can be intimidating to leave this assistance, but moving out of a small business designation can be exciting as well. It means you have successfully navigated a major business challenge and are ready to take on more challenges as they come. Keeping these four things in mind will help CEOs and founders on their business journeys.