Government contracting can be lucrative for a small business, particularly during an economic downturn when many revenue streams have diminished.
In good times and bad, the government must continue to serve the public, and a small business has just as much opportunity as a large one to win contracts. In fact, when competing in the government market, small businesses, especially certified small businesses, often operate at an advantage.
Many small business owners have learned that government contracting work can be steady and reliable if they follow the guidelines and make a clear case why their companies are the best choice.
Review the following ways that government contracting is good for small companies and determine if your business might be suitable.
1. The government wants to work with certified small businesses. Federal mandates specify that nearly all government contracts over $3,000 and under $100,000 be reserved for certified small businesses. To bid on these contracts, a company must fall within certain parameters, including size of staff and budget. To participate, your business must qualify as a small business as defined by the Small Business Act. For most manufacturing industries, this means it must have fewer than 500 employees, or fewer than 100 employees for the wholesale trade industry. Revenue must be below $28.5 million for most general and heavy construction industries; $12 million for all special trade contractors; $6 million for most retail and service industries; and $750,000 for most agricultural industries. The business must be organized for profit, operate primarily in the United States, be independently owned and operated, and not be dominant in its field on a national basis.
The government especially wants to work with businesses that are owned by women, disadvantaged individuals and service-disabled veterans. It mandates that three to five percent of all contracts be awarded to these groups.
2. Government spending is consistent. Unlike spending in the private sector, government spending is somewhat predictable year over year. For example, in 2008, federal agencies spent nearly $518 billion on government contracts. In 2007, agencies spent $456 billion, and in 2006, that number was $423 billion.
3. The government pays its bills. While slow collections and some unpaid debts are part of working in the private sector, the government typically pays within 30 days if you follow billing specifications. In addition, some agencies use electronic funds transfers to speed payment or purchase cards (similar to credit cards) for micropurchases. In terms of a guarantee to collect what you are owed, the government’s promise to pay is good.
4. Decision making is fairly transparent. Unlike private sector buying, the government’s purchasing system is extremely transparent. Government agencies buy many of the products and services they need from suppliers who meet certain qualifications. They apply standardized procedures to purchase those goods and services. If you are willing to spend the time required to familiarize yourself with these guidelines, contracting can become a lucrative business. Some agencies even offer classes to help you learn the system.
5. Location usually doesn’t matter. Federal offices are located around the country, so you typically do not have to live and work near Washington, DC, to do contracting work for the federal government. State and local governmental entities — including cities, counties and school districts — actually purchase more goods and services cumulatively than does the federal government.
The federal government buys a range of products and services. Examples include engineering services, automatic data processing equipment, lab equipment, furniture, books, office machines, advertising services, writing services, tires, toiletries, athletic equipment, medical equipment, housekeeping services and more.
Because of size and scale, local government contracting is sometimes a better fit for small businesses. For example, it’s easier to maintain computer equipment for City Hall than for the entire Defense Department. While your local standing in the community may not assist you in earning a national contract, local government officials may take this into account when making a decision.
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