Government contracting makes up a large percentage of the gross domestic product in the United States. With federal agencies required to grant up to 5% of government contracts to women owned small businesses, many small businesses wonder about how to take advantage of this income stream. The first step is to become certified as a women owned small business (WOSB).
To become certified as a WOSB, businesses must go through state, federal, local, or third party certifiers depending on the what entity you want to contract with. For instance, the City of Denver has its own application process to get approved as a WOSB. The Small Business Association, on the other hand, has four outside agencies it uses to approve WOSB. Unfortunately, there is not one standard approval process out there.
The requirements vary depending on the certifier, but almost all of them require that a woman have at least 51% of the ownership interest in the business. Women must have the final say in most business matters, such as dissolving the company, merging the company, and in the day-to-day operations. Most certifying agencies will require paperwork such as operating agreements or bylaws to show the control of the company. Some even require an onsite visit or in-person interview to ensure that the company is truly run by a woman.
With some certifiers, husband and wife owned businesses are not even eligible for WOBS. For the certifiers that do allow husband and wife owned businesses to qualify for WOBS, the certification process is much more stringent in most cases. In addition to being the majority owner on paper, the wife must prove that she can handle the day-to-day operations of the company. There are several examples of how even if a wife owns the majority in a business, the SBA will not certify the company as a WOSB on the SBA website. One example that is listed is the case of a husband and wife owning an auto shop where the wife does not have experience as a mechanic and is not licensed as a mechanic. The SBA states that even if the wife owns the majority in the shop, if her husband is the experienced mechanic, holds the associated licenses, and has an equity interest in the company, the business will probably not qualify for WOSB status. If you have a husband and wife owned business, caution must be used prior to applying for WOSB status to ensure that you can qualify.
Prior to attempting to get certified as a WOSB, even if you know you are eligible, you should weigh the pros and cons. While the pros are fairly obvious (i.e. a greater chance to win those government contracts), the cons are sometimes more difficult to determine. If you are thinking about selling your business in the near future, WOSB are more difficult to sell as if the potential owners of a successor business are mostly male, the income stream may decrease as the business would no longer qualify for WOSB. In addition, if you are a small business that uses equity to get employees and contractors, you may find that while you qualify as a WOSB today, you don’t tomorrow. Finally, the process can be long and time-consuming so if you are already successful it may not be best for your bottom line to apply.
If you have questions about applying for women owned business status, please call me today!