Financial Reporting for SBA 8(a) Participants

 James Skinner / July 13, 2023

Author's Note: Originally posted on the Small GovCon CFO blog on July 13, 2023.

You’ve spent several months, maybe longer, applying to get into the Small Business Administration’s 8(a) Business Development Program. After a thorough SBA review, developing your business plan, getting approved (congrats!), and signing a bunch of paperwork you may wonder... “What are my financial reporting requirements?” or “How do I prepare financial statements for the SBA?” As a participant in the 8(a) program, you must be aware of and comply with several reporting requirements. The requirements are provided to you in your Participation Agreement and are also found in the program regulations at 13 C.F.R. § 124. If you don’t keep up with these requirements, you risk losing your 8(a) status and all of the benefits it can provide you. It’s especially important that small 8(a) participants–those with less than $2,000,000 in gross receipts–are aware of the financial reporting requirements to be successful.

General SBA 8(a) reporting requirements

Each year, 8(a) participants are required to undergo an annual review of their business operations, including its financial statements and other relevant documentation. The purpose of this review is to assess the participant's eligibility, continued participation, and overall progress in the program. It is important to note the specific financial reporting requirements may vary depending on an individual participant's circumstances, the SBA's current regulations, and any additional conditions imposed by the SBA during the participant's engagement in the 8(a) program. Generally, the following requirements apply to all participants:

Business Financial Statements—Participants are required to submit their business financial statements (balance sheet, income statement, etc.) annually. Some participants may also be required to submit quarterly financial statements as well. The financial statements provide an overview of the company's financial performance, including revenue, expenses, assets, liabilities, and cash flow. The financials can be prepared in-house, or by an outside bookkeeper/accountant. Depending on gross annual receipts (aka “revenue” or “sales”), the financials may need to be reviewed or audited by a CPA.

Personal Financial Statements—In addition to the business financial statements, participants may need to provide personal financial statements for each disadvantaged owner (who holds at least 51% ownership) of the 8(a) firm. Personal financial statements typically include information about personal assets, liabilities, income, and expenses.

Personal/Business Tax Returns—Participants are typically required to submit their business and personal tax returns for the previous three years. These returns help the SBA assess the participant's compliance with tax obligations and gain insight into the financial health of the business.

Business financial reporting requirements for 8(a) participants with <$2M in gross receipts

As a “small” (my term for 8(a) participant with less than $2,000,000 in gross receipts), you must submit a balance sheet and income statement (also known as a profit and loss statement, or “P&L”) to the SBA within 90 days of the close of your fiscal year. The financials may be prepared in-house or compiled by an independent CPA. For most, preparing in-house financial statements is the most economical option. CPA firm compilation fees can run $1,000 or more! In-house preparation can easily be done if your bookkeeping is up-to-date and your accounting system is set up correctly. It can be as simple as printing reports from QuickBooks. But if you aren’t sure how to prepare the statements, or worry about the status of your bookkeeping, you can get help from a bookkeeper or an accounting consultant who is familiar with the 8(a) requirements. However, it’s important to note that regardless of who prepares the financial statements, you as the owner must certify them.

The following is a list of things to keep in mind when preparing your financial statements:

• ✔ Ensure the statements represent the true condition of your business. Do the total revenues and expenses make sense? If your P&L shows a large profit or loss and that surprises you, stop and figure out why. Or, if the balance sheet shows owners’ equity as negative, be able to explain why.
• ✔ Make sure all transactions are recorded. Reconciling your bank and credit card accounts is one way to do this.
• ✔ Make sure your chart of accounts is set up to separate 8(a) revenue from other revenue.
• ✔ Confirm financial statements are presented in accordance with Generally Accepted Accounting Principles (GAAP) if applicable. While SBA regulations only require this for reviewed and audited financials, GAAP is required for all government contractors. GAAP requires accrual-basis accounting, so making sure reports from your accounting software are run on this basis is an important first step.

And remember, you must also submit your personal and business income tax returns, and a personal financial statement to SBA in addition to your business financial statements.

Do you need help preparing your SBA 8(a) business financial statements? Schedule a free consultation today!

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Disclaimer: This information on this blog, including this blog post and any comments, are intended for general information only and provided to you “as is” without any representations or warranties, express or implied. Blogs can’t substitute for accounting, tax or legal advice specific to your situation which can only be obtained from consultation with a qualified professional.