by Yolanda Cowart, Florida PTAC at USF | February 22, 2019
Why do so many businesses fail to access the federal marketplace?
The spending power of the federal government makes it a very attractive market. However, operating a profitable business in the federal marketplace creates obligations, potential liabilities and risks that do not exist in the private sector.
In order to sell products and services to the government, a business owner will need to plan, prepare and evaluate the company’s potential.
There are several reasons why business owners fail to secure government contracts or fail while performing on federal government projects. In order to give a company a fighting chance, avoid these eight common mistakes:
- Inadequate business framework: Accessing government contracts requires a blueprint for success. In order to compete successfully, a business owner will need to create a business plan for government contracting goals. A well thought out strategy forces one to think about opportunities, risks, strengths, and weaknesses.
- Poor execution and internal controls: Government contracts require intelligent processes and procedures. Business owners must adopt safeguards that will protect not only their business, but the government from mistakes, mishaps, uninformed decisions, and inappropriate actions by any employees or team members.
- Overexpansion: Government contracts often require business owners to beef up their operations. Taking on added overhead and operational expenses too soon can impact the ability to perform and execute contracts efficiently. Business owners should start with realistic goals and manage growth and expectations.
- Poor capital structure: A business owner should conduct a cash flow analysis and cash flow projection in order to avoid accumulating too much debt. Government contracts will have a direct impact on a company’s cash flow cycle. It requires a capital structure that can support growth and sustain an entire operation until the government pays.
- Lack of reserve funds: Government awards are often accompanied by unexpected cost associated with executing contracts, fulfilling orders and meeting demands. These pitfalls could be devastating for a business if the company does not have the funds to address unforeseen cost quickly. Failure to be able to address issues fast and efficiently could result in the loss of credibility with the contract administrator and ruin the potential for future awards.
- Overspending: Many businesses blow their operational budgets before cash has begun to flow in at a positive rate. A company must ensure a government contract will be well-capitalized. Understanding cash flow by capturing expenses and resources prior to beginning a project, will ensure the contract is capitalized properly.
- Ineffective marketing and self-promotion: It is important for a business owner to learn how to market the company’s capabilities effectively. A strong Capabilities Statement will help gain the attention of contract specialists. Inadequate marketing often occurs due to a lack of research and a misunderstanding about how the federal sector operates.
- Underestimating the competition: There is a large possibility that many competitors may have already built relationships with government agencies, prime contractors and contract specialists. Winning a government contract doesn’t just happen; it is earned. If a business owner doesn’t take the time to learn about customers and potential partners, the competition will.
Successful government contractors have strong capital structures that include reserve funds for unforeseen cost. They also have good internal controls and intelligent processes and procedures that allow them to execute contracts efficiently. An adequate business framework will avoid overexpansion and overspending.
The federal landscape is filled with small companies that fail to secure that first contract. In order to sell your products and services to the government and successfully execute contracts, you will need to understand your competition, create a marketing plan, prepare your operations and evaluate your potential.
There are a number of local resources available, such as the professionally credentialed procurement specialists at the Florida PTACs, that can assist companies as they decide to enter the government contracting arena.