Government contracts are one of the best ways to build a business. Many people think of giant companies when they think of government contracts, but that doesn’t mean there aren’t options for small and medium businesses.
Believe it or not, 27.2% of federal government contracts were awarded to small businesses in 2021. That means there are plenty of opportunities for companies, large and small, to sell goods and services to the government.
Do you want to learn what it takes to start government contracting and what to expect after winning one? Read the guide below to learn what you need to know.
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How to Start Government Contracting
Government contracting is the dream for many businesses. It reduces the need to constantly search for customers since you have a reliable contract that keeps you busy for some time. However, you can’t just call a government office to start.
Let’s take a look at how to start contracting with the government.
Find a Niche
Many government contracts are very specific. Government organizations hire companies to perform specific tasks. The more you can hone in on the needs of the government, the better you can tailor your services to meet those demands.
Look online to see what services the government needs. You can then see your current capabilities and if you’re in a position to meet those demands.
If not, you’ll need to refine your services to match government demands. You’ll need to hire experts or refine your own skills to be able to handle this task.
Understand the Rules
Working with the government has a unique set of requirements. Those requirements may be small if you work with smaller governments. But things can get much more complicated if you work with larger agencies.
Take a company that needs to work with sensitive information, for instance. You and your team may require security clearance before applying for those contracts.
Look to see what the regulations are for the type of work you want to do. You need to understand these rules and follow them if you want your bids accepted.
Register to Make Government Bids
You can’t just decide to bid on government contracts one day and get started. There’s a system in place to register government contracting companies that you need to go through.
You probably already have a corporation in place that’s registered with the IRS, so you’re already part of the way there. If not, create your company and move to the next step.
After you have your company, you need to register with the system for reward management. This will give you access to government bid listings and allow you to make government bids.
You’ll also need a DUNS number for every location your business has. This registration helps prove the financial stability of your business.
Bid on Contracts
You’re ready to bid on contracts once you’re set up in the reward system. There are many websites where government entities post contracts and their requirements. Start looking through those sites to see what’s out there for your business.
These websites will have a bid format you need to follow. Examine the document carefully because not doing things right may result in rejection.
Once you learn how to format your bid and examine the requirements, come up with a price for the work. Remember, you’ll be competing with many companies. You’ll need a great offer that makes sense for the government and makes a profit for your business.
Many contracts will end with the bidding process, but others may end in negotiation. If a government organization likes your business, you may discuss the price and requirements to work out a deal.
If a government agency likes what you offer, you’ll get your offer accepted and become a government contractor.
What to Expect When Government Contracting
Now that you know what it takes to become a government contractor, it pays to learn more about the process. Here are a few things to expect when contracting with the government.
Financial Stability
One good thing about the government is that they pay their bills. In some situations, you’ll have problems tracking down payments from customers who don’t pay. You probably won’t have that issue when you work with the government.
Unless you work with a government that isn’t funded, you can expect your bills to be paid on time. As a result, you can expect financial stability for your company without worrying about unexpected issues.
You can also take advantage of things like government invoice factoring. That gives you more runway with your budget and the ability to put your business in a better financial position.
Receive Follow-Up Contracts
One great thing about winning your first government contract is getting your foot in the door. You become a trusted source if you do great work. You can use that to your advantage.
Many government agencies have follow-up work that they need to be done. However, it takes a lot of work to go through the bidding process again. Why do that when they already have a trusted source that does excellent work?
That means you can win follow-up contracts after you begin working and do a great job. This will reduce the stress of bidding on contracts for you and lead to more long-term work with government agencies.
More Transparency
One big problem with working for other businesses is the lack of transparency. You don’t have any insight into what happens behind closed doors at a company. They could be on the verge of bankruptcy, and you won’t know about it.
That’s a problem when it comes time to get paid. Many companies put off paying invoices and go out of business before paying their vendors.
The same isn’t true with government contracts. Governments must stay transparent with finances and have most things as public records. That means you know for sure if a government has the funding for a project and won’t need to worry as much about surprises.
Lots of Preparation
While winning a long-term contract can lead to a sustainable business, it takes a lot of work to get there. Government rules are complex, and there are many requirements your business needs to meet. That means it can be some time before you get your first contract.
That’s a big issue if you don’t have any other work coming in. You’re putting all your hopes on getting a contract, and you may not succeed.
You’ll need funding for your business and the ability to put off profits if you want to start contracting. That’s too much to ask for some companies because they have bills and employees to pay.
Lack of Other Clients
There are times when government contracts can make up most of your work. This is great when you’re on a contract. You have an expected amount of profit for as long as that contract exists.
The question is, what happens if that contract goes away? Contracts can disappear because of government budget cuts and other reasons. You’re in trouble if that’s all the work your business has.
That means it will take extra planning to stay afloat if you ever lose contracts. Since you may not have many other clients, it can seriously strain your business.
Slow Payments
Yes, you get a reliable partner when you start working with the government. But as you probably know, the government isn’t known for speed.
The same is true for payments. Many government organizations will want net 60 payment terms in their contracts. You can count on the agencies you work with not paying until the payment is due.
That means you may wait some time to get your first payment. You can start getting regular payments after that if you do regular work, but it’s still something you should be aware of before looking for contracts.
Becoming a Government Contractor Is Worth Doing
It’s not easy to become a government contractor that takes on projects. You must find a niche to become great in, bid on projects with competitors, and prove that your organization can handle the job.
That’s why it can be stressful when getting started with government contracting. However, it’s worth doing when you learn how to do things right. You’ll get consistent income and work for the work you provide to the government.
Look at how to get started today and try your hand at becoming a small business that works with the government.
Head back to the blog if you want to learn more about running different types of businesses.