How SBA averages annual receipts (13 CFR 121.104)
How 13 CFR 121.104 defines receipts and averages five fiscal years, with a worked example and the exclusions the rule lists.
For a concern that has been in business five or more completed fiscal years, 13 CFR 121.104(c)(1) defines annual receipts as the total receipts over the most recently completed five fiscal years, divided by five.
What counts as receipts
Section 121.104(a) starts from total income (gross income for a sole proprietorship) plus cost of goods sold, as those terms are defined and reported on the federal income tax forms. It names the forms, including Form 1120 for corporations, Form 1120S for S corporations, and Schedule C for other sole proprietorships. The section says receipts include revenue in any form, reduced by returns and allowances.
What the rule excludes
The section says the only exclusions for size purposes are those it lists: net capital gains or losses; taxes collected for and remitted to a taxing authority, when included in gross or total income; proceeds of transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. Subcontractor costs and reimbursements are not on that list, and the section says they may not be excluded.
Where the figures come from
Section 121.104(a)(1) says SBA will consider and generally rely on the concern's federal income tax return, and any amendment filed with the IRS, on or before the date of self-certification. Where a return for a year in the period is missing, SBA uses other available information, such as books of account or audited statements (121.104(a)(2)).
A worked example
Suppose a concern in business for five completed fiscal years reports receipts of $10.0 million, $12.0 million, $9.0 million, $11.0 million and $13.0 million. The total is $55.0 million. Divided by five, the average annual receipts are $11.0 million. The calculator on this site performs the same division and shows each step. It does not add the receipts of affiliates.
Fewer than five completed fiscal years
A concern in business for fewer than five complete fiscal years uses a different calculation. Under 13 CFR 121.104(c)(2), annual receipts are the total receipts for the period the concern has been in business, divided by the number of weeks it has been in business, multiplied by 52. The calculator on this site has an option for that case: choose "Fewer than five completed fiscal years" and enter the total receipts and the number of weeks in business. Where a concern has five or more complete fiscal years but one of them is a short year, 121.104(c)(3) uses the same weeks-based method over the short year and the four full fiscal years.
What this guide does not cover
The Business Loan, Disaster Loan, Surety Bond Guarantee and Small Business Investment Company programs have their own rules in the same section, including a three-year election in 121.104(c)(4). Read the section itself before relying on any figure.