Did you know that over 20% of the Federal Government’s budget is spent with small business? It’s true and, moreover that number is growing as more and more services and functions are being outsourced to private industry. This is happening in all departments of the government. And, similar trends can be seen with most, if not all, state governments as well because all these governmental entities are striving to cut costs in order to keep up with shrinking tax revenues. So, by outsourcing, they can get the same services performed at a fraction of the cost of hiring and employing workers. It is also happening with local municipalities. As a result, government spending is reduced and opportunities are created for the private sector. The key word here is “opportunity”. Are you ready for it?
Government contracts are appealing because they tend to be multi-year in duration. Some are for one year but have multi-year options that are available just for just meeting the terms of the contract in the prior year. In other words we are talking about predictable income for a fairly long period of time. The not-so-appealing part of it is that it takes some know-how to find and bid on a government ‘request for proposal’. Also, it takes some working capital to accommodate the government’s pay cycle. Specifically, once a contract has been awarded, the winner must hire any necessary staff and get the right equipment and facilities in place as required by the contract. The costs of all that is reimbursable but it may take 60 – 90 days to get your first check. So, that time span defines the minimum amount of working capital that would be required to get up and running.
The good news is that there are some banks and other institutions that will work with small businesses to provide that working capital. To be eligible, however, you must have already been awarded a government contract and you must be otherwise loan-eligible (reference the 5 C’s of credit).
Of course not all functions that are performed by the government can be outsourced but many can. And, some have special requirements. For example, in order to be eligible to bid on an RFP that has been published by the Department of Defense or the Department of Homeland Security the bidder may be required to have a security clearance for those employees who will be conducting the work. Additionally, the facility in which they would perform the work may also need to be “cleared” by a government security team. All of that is understandable. But, if you and your staff do not currently have a security clearance and, if your facility has not been cleared then you can anticipate an up-front expense to meet those requirements just to make you eligible to bid. It is important to note that the investment doesn’t guarantee success but it sure puts you in the running. Don’t get me wrong, the effort and investment will be well worth it in the end once you do win that first contract. But, it is something you should be aware of when you are creating a financial pro forma in anticipation of doing business with the government.
On a final note, you should be aware that the government gives special preference to certain kinds of individuals. For example, minorities who are business owners will get a certain preference as will women, veterans, and disabled service veterans. All these classifications are prioritized by the Federal government and play a big role in determining the ultimate winners of bids to do work for the government.
The opportunity is huge and growing but you may need to find someone to assist you in a few key areas namely; finance (CFO who has government contracting experience), an expert in finding and qualifying opportunities at all levels of government, someone who has expertise in preparing bids, and, finally, someone who has expertise in setting up your internal accounting system in accordance with Government specifications. I can help with all of this and have a team of experts that can help you expand your markets and revenues with government contracts. If you would like to talk about this opportunity, contact me at: firstname.lastname@example.org.