How to Calculate Average Annual Receipts for SBA

How to Calculate Average Annual Receipts for SBA Certification

Compiled & reviewed by the EntityCodes Editorial Team (Tech Labs FZ LLC) · Data verified: 2026-06-28

Calculating your average annual receipts under SBA rules requires averaging gross income over five completed fiscal years.

SBA Receipts Calculation Formula (13 CFR § 121.104)

To determine eligibility under receipts-based size standards, businesses must calculate average annual receipts over their last five completed fiscal years ^[cfr-sba-13]. This five-year averaging period is codified in 13 CFR § 121.104, which transitioned from a three-year period following the Small Business Runway Extension Act of 2018.

SBA defines receipts as total income plus cost of goods sold, as reported on IRS tax forms (Form 1120 for corporations or Schedule C for sole proprietorships) ^{[irs-pba-instructions]}. Passive income and certain capital gains must be included, but sub-contractor distributions are not automatically deducted.

Worked Example Calculation

If a software firm applying under NAICS 541511 (size standard: $34.0M) has the following tax filings:

Year 1: $28,000,000
Year 2: $30,000,000
Year 3: $32,000,000
Year 4: $35,000,000
Year 5: $37,000,000

The sum of receipts is $162,000,000. Dividing by 5 yields an average of $32.4 Million. Because $32.4M is below the $34.0M limit, the firm qualifies as small ^{[cfr-sba-13][sba-size-standards]}.

Federal Size Standards & Regulatory Rules

To support the core compliance tasks detailed in this guide on How to Calculate Average Annual Receipts for SBA Certification, compliance officers and corporate attorneys must consult several small business size standards references. The main limits are outlined in the U.S. Small Business Administration (SBA) Table of Small Business Size Standards, and codified in federal law in the Electronic Code of Federal Regulations (eCFR) 13 CFR Part 121 - Small Business Size Regulations. Size protests and legal appeals are decided by the SBA Office of Hearings and Appeals (OHA) Size Appeal Decisions and SBA Rules of Practice. Monetary standards are adjusted for inflation according to the Federal Register Small Business Size Standards Adjustment for Inflation Notice. Affiliation audits examine corporate structures under the rules of Electronic Code of Federal Regulations (eCFR) 13 CFR § 121.103 - SBA Corporate Affiliation Rules. Calculation of corporate revenues averages receipts using Electronic Code of Federal Regulations (eCFR) 13 CFR § 121.104 - Calculation of SBA Annual Receipts, while employee headcounts are calculated under Electronic Code of Federal Regulations (eCFR) 13 CFR § 121.106 - Calculation of SBA Employee Headcount. Contractor sizes are verified in the federal procurement database using the GSA Federal Procurement Data System (FPDS) FPDS Government Contracting Size Standard Verification Guidance. The statistical models for size limits are detailed in the U.S. Small Business Administration (SBA) SBA Size Standards Methodology Whitepaper, and audit integrity reviews are published in the Government Accountability Office (GAO) SBA Size Standards: Actions Needed to Improve Registry Integrity.

💡 Expert Guidance: Annual Receipts COGS Deduction Error

A critical math mistake in size calculations is deducting the Cost of Goods Sold (COGS) or net operating losses from annual revenues. Under 13 CFR § 121.104, 'receipts' means 'total income' plus 'cost of goods sold' as reported on IRS tax returns. Gross receipts cannot be reduced by operational expenses for SBA calculations.

Frequently Asked Questions

What averaging period does the SBA use for revenue? ▾

The SBA uses a five-year averaging period (13 CFR § 121.104) to calculate average annual receipts for small business status.

Does cost of goods sold get deducted from SBA receipts? ▾

No. The SBA defines receipts as total income plus cost of goods sold. You do not deduct cost of goods sold.

What is the averaging period used by the SBA to calculate annual receipts? ▾

Following the Small Business Runway Extension Act, the SBA utilizes a five-year averaging period (13 CFR § 121.104) to calculate average annual receipts. If a business has been in operation for fewer than five years, the averaging period is the total number of weeks in operation.

What tax forms are used to document gross receipts for the SBA? ▾

The SBA requires submitting tax returns filed with the IRS, specifically: Form 1120 for C-corporations, Form 1120-S for S-corporations, Form 1065 for partnerships, and Schedule C (Form 1040) for sole proprietorships.

Do I deduct the Cost of Goods Sold (COGS) when calculating SBA receipts? ▾

No. Under 13 CFR § 121.104, receipts are defined as total income plus cost of goods sold, as reported on your IRS tax returns. You cannot deduct COGS or other operational expenses.

How does a new business calculate its receipts before completing its first fiscal year? ▾

A new business must calculate its receipts by taking its total revenue since inception, dividing by the number of weeks in operation, and multiplying by 52 to project an annualized receipts figure.

Are passive income and capital gains included in SBA receipts? ▾

Yes, the SBA definition of receipts is broad and includes all revenues, interest, dividends, and passive income reported on your tax forms. Only specific exclusions (such as certain inter-affiliate transactions) are permitted.

Can I subtract subcontractor payments from my SBA annual receipts? ▾

No, subcontractor payments cannot be subtracted from your annual receipts, even if the revenues are passed directly to another firm. The SBA counts all gross inflows received by your firm.

How are PPP loan forgiveness values treated in SBA receipts? ▾

Under SBA guidelines, forgiven Paycheck Protection Program (PPP) loans and federal economic disaster grants are excluded from the calculation of gross receipts to prevent penalizing small businesses.

What is the formula to calculate weekly receipts for short-period tax returns? ▾

For short-period tax returns (filings covering less than a full year), you must divide the total receipts on that return by the number of weeks covered to establish a weekly average for the SBA.