Government agencies at the city, county, state, and federal level buy products and services every day. They buy every imaginable type of product and service from almost every industry. They buy cleaning services, office supplies, machinery, technical support, consulting services, and the list goes on. This spending creates an opportunity for many small business owners who are looking to grow their businesses.
1. Should you become a government contractor?
Becoming a government contractor can be very profitable – if done correctly. However, getting started as a contractor and managing the process is difficult.
You will spend a fair amount of time getting set up and learning the system. And that’s just to get started. You then need to spend a lot of time looking for opportunities, reviewing them, and managing bids. Lastly, you need to consider that you will be competing against companies who will make every effort to undercut your prices. Unfortunately, there is so much competition for some government contracts that the profit margins are very low.
a) Many contracts have low profit margins.
Contrary to what most people think, the government seldom overpays for things. Actually, government procurement officers are very skilled negotiators looking to save the government money. That fact, combined with heavy competition, lowers your profit margins. Unless you sell a very unique service or product, expect very low profit margins. You need to determine if it will be worth your while. However, government sales have important advantages.
b) The advantage: big sales and regular business
One important advantage of working with the government is that you can get a constant influx of business. Governments buy goods and services every month of every year. They make purchases even during periods of recession when companies are cutting back. More importantly, government agencies often make large purchases. These purchases can be a great opportunity to grow your business – quickly. Ultimately, you must decide if selling to the government is right for your business.
2. How to find and get federal contracts
Finding government contracts is a fairly simple process. However, examining the actual solicitations and submitting bids can be complex and time consuming. Consider working with a consultant during your first few bids until you become familiar with the process. Follow these steps:
a) Register
Your first step toward doing business with the U.S. government is to register as a vendor. In the past, registration was done through the Central Contractor Registration (CCR). This step has transitioned to the System of Award Management.
To register, you need your corporate information and a DUNS number. DUNS numbers are provided by Dun and Bradstreet free of charge. However, the company may suggest you buy credit services when you register for your DUNS number. At the time of this writing, you do not need to buy anything or pay anything to get the DUNS number.
b) Look for opportunities
Your next step is to look for opportunities. You can take this step online at FedBizOpps. Searching is relatively easy, though it can be overwhelming at first because of the sheer number of opportunities.
You can search by a number of criteria, such as location, type, agency, and keyword. You can narrow results by using the “Advanced Search” tab and selecting specific options.
Here are the results of a simple national search using a NAICS code, in this case code “33431 – Audio and Video Equipment Manufacturing”. As you can see, there are 20 results per page and 16 pages of results.
When looking for opportunities, it is best to start with a narrow search and expand from there.
c) Review opportunities
You will notice that most opportunities have very extensive solicitation documents. These documents can be long and they spell out the details of the opportunity. You will spend a lot of time reading these documents, so be selective in your choices.
However, you need to read these completely to understand what the government wants to buy and under what terms.
d) Decide if you will submit a bid
Once you have selected the opportunities that interest you, prepare your bids. Remember that the government always looks to purchase items and services at the lowest possible price, so you must be competitive. However, you also have to price your products and services so that the transaction is profitable for you. This pricing can be difficult at first, but you will improve as you gain experience.
The “Notices Area” has an “Interested Vendors List” tab that gives you an idea of who your competition is. It helps you determine how competitive your pricing must be.
e) Submit a bid
If you decide to submit a bid, follow the instructions in the solicitation package. Be very careful when submitting a bid. Submit a bid only if you are willing and able to fulfill it completely. Therefore, you must figure all the pricing, financial, and logistical details before submitting the bid. You do not want to be unable to fulfill a bid you had won. This scenario would harm your reputation and could have legal implications.
f) Get educated
The government procurement process is complex and can’t really be summarized in six simple steps. If you want to become a successful government vendor, you need to know the system inside out. You can find most of the information on the government websites. Alternatively, you can also contact your local Small Business Administration (SBA) office. They often have courses on how to find and win government contracts.
3. Look for state, county, and city contracts
One alternative to consider is looking for local contracts. You can often bid for contracts at the state, county, and city level. These contracts are separate from the government procurement process. Usually, they are also separate from each other. Many cities, counties, and states have their own individual procurement processes.
Each state is different; however, finding the procurement office is relatively simple. Just search the Internet for “(your state/county/city) procurement” or “(your state/county/city contracts).”
4. Use special designations to your advantage
There are a number of programs designed to help certain businesses succeed at government contracting. Getting a special designation can be critical to the success of a small business and helps you compete against much larger companies. You should review these carefully to determine if you qualify.
Some designations and programs include 8(a) Business Development, HUBZone, Service-Disabled Veteran, and women-owned small businesses. You can find more information at the SBA.
5. Get your financing in place
One of the advantages of competing for government contracts is that they can be substantial. They can give your small business the opportunity to grow significantly. However, some of these contracts can strain your finances or exceed your capitalization.
For example, many small companies can’t wait 30 to 60 days to get their invoices paid by the government. Other companies don’t have the working capital to pay suppliers so that they can fulfill the government purchase order. These problems can prevent you from becoming a successful government contractor. If you are not well capitalized, consider getting your financing in place ahead of time.
Three common options to finance government projects are factoring, asset based lending, and purchase order financing. Factoring allows you to finance slow-paying invoices. Instead of waiting up to 60 days to get paid by the government, you can get paid by the factoring company sooner.
Asset based lending is a solution that is offered to larger companies that allows them to finance accounts receivable, inventory, and other assets. Lastly, purchase order financing allows you to finance purchase orders for products, in which your company acts as a re-seller. It provides the funds to pay your suppliers, which enables you to fulfill the order.
Do you need financing?
We are a leading provider of factoring, asset based lending, and purchase order financing to government contractors. For a quote, fill out this form or call us toll-free at (877) 300 3258.