Let’s be honest: Navigating government contracting can be as intricate as trying to solve a Rubik’s Cube blindfolded. It’s already a challenge to bid, win, and deliver on federal contracts without having to worry about whether your personal net worth (PNW) is creeping dangerously close to the SBA’s 8(a) threshold. But all is not lost—there are perfectly legitimate ways to reinvest your hard-earned revenue that support company growth, reduce taxable income, and keep your 8(a) eligibility firmly intact.
Below, we’ve highlighted several strategies that can help you smartly allocate funds without accidentally bumping your PNW over the 8(a) line.
Real Estate: Building Equity … in the Company’s Name
Yes, you can say “yes” to real estate—just do it under the business (not your own personal name). Buying or leasing property through the company is a savvy way to build equity for the firm, rather than your personal portfolio.
Pro tip: Keep all transactions at arm’s length (fair market values are your friend) and document them thoroughly. If you decide to buy a building in a separate holding company you own, keep all rent and lease arrangements squeaky clean to avoid pesky affiliation or compliance issues.
Retirement Plans: Contributions That Don’t Count Against You
Retirement accounts can feel like life rafts in a sea of PNW uncertainty. Under most circumstances, qualified retirement plans (like 401(k)s, profit-sharing, or defined benefit/cash balance plans) are excluded or minimally counted in 8(a) net worth calculations. Translation?
Big Potential, Big Savings: You can set aside sizeable chunks of company profits into these plans, potentially reducing your business’s taxable income and shielding that wealth from your PNW total.
Stay in the Lines: Be sure contributions meet IRS rules for qualified plans—and that you’re not the only one in your company who benefits. Share the retirement love with employees, and keep those plan docs and contributions buttoned up.
Invest in Growth: CapEx, R&D, and Talent
Spending money to make money may sound like an overused cliché, but investing in growth can be the difference between treading water and swimming laps in the gov con pool. Consider:
Upgrading Equipment: From new software tools to specialized machinery, capital expenditures not only expand your capabilities but also reduce year-end profits—without boosting your personal balance sheet.
Research & Development: If your 8(a) firm is carving out a niche in tech or specialized services, R&D investments keep you competitive while smartly allocating funds within the business.
Talent & Training: Strong teams win contracts. By offering professional development opportunities, advanced training, or new certifications, you’re positioning your company for future success—and you’re not making yourself personally richer in the process.
Employee Benefit Programs: Profit-Sharing & More
When your business thrives, your people should thrive, too—and nothing says “Let’s grow together” like a well-structured benefit program.
Profit-Sharing Plans: It’s a strategic avenue to reward your team for hitting targets (and hey, it also helps manage that dreaded leftover profit that might otherwise end up in your personal coffers).
Perks & Extras: Health insurance? Employee assistance programs? These essential benefits keep employees happy and bolster your company’s reputation. Plus, they’re legit business expenses, not personal assets.
The Master Key: Documentation, Documentation, Documentation
It might sound about as exciting as filing your taxes, but meticulous record-keeping is your best friend—especially if the SBA knocks on your door for an eligibility check. Clear documentation of all expenditures, from real estate transactions to retirement contributions, protects you and ensures no confusion about whether funds remain in the business or land in your personal piggy bank.
Final Thoughts
Balancing your 8(a) eligibility with savvy financial moves is like walking a tightrope: the margin for error can feel small, but a firm grasp of the rules keeps you from tumbling off. By funneling profits into legitimate business growth, qualified retirement plans, or staff development, you can maintain a healthy bottom line and preserve your seat at the 8(a) table.
The bottom line? You have options beyond just sitting on excess profits (or risking your personal net worth climbing through the roof). A thoughtful, strategic approach to spending—and an 8(a)-savvy advisor in your corner—can set you on the path to government contracting success, all while keeping the SBA’s net worth thresholds at arm’s length.
