Small business tip of the week: Government contracts can boost revenue
Aug. 23, 2010 at 3:23 a.m.
Is government contracting a possibility for my business to increase sales revenue? Can a small business compete with big businesses for government contracts?
When is a small business ready to take on their first government contract?
Here are a few steps to help you decide whether your business is ready for government contracting and when your business will be ready.
Government contracting can most certainly help a business increase sales, but businesses should not just focus on sales increases alone.
A business must understand first that government contracting is very competitive and requires that the business prove its ability to perform the task of the contract in the time frame allotted.
The first step in determining if you're ready to compete for a government contract is the length of time a company has been in business.
In order to be the prime contractor, most government contracts require at least two years of business experience.
The second step is to understand government contracts have a tendency of not paying bills for 60 to 90 days after the date of competition of each phase of the contract. Therefore the small business needs to have the cash flow reserves available in order to continue to operate until payments are received.
If both of the previous steps can be completed, then the business should take the third step and determine their lowest sales price the business is willing to accept for their product or service. Many businesses have been awarded government contracts only to later learn they actually are hurting business by bidding so low they lose money.
The fourth step is to plan for the increase in demand from the acceptance of a contract, as well as to plan for a decrease in demand if the contract is terminated or the business loses the contract in the future. Businesses that become heavily dependent on one contract are likely to have short-term success but may be destined for quick failure - if the business doesn't plan for the potential loss of the contract.
The last steps should then be to do the following, which the University of Houston-Victoria Small Business Development Center can help you with:
Determine the North American Industry Classification System number for your business.
Obtain a Data Universal Numbering System number.
Register your business with the Central Contractor Registration.
Following are other helpful resources:
Small Business Administration government contracting website: Sba.gov/aboutsba/sbaprograms/gc/index.html
Procurement Technical Assistance Centers help business seeking federal, state, and local government contracting: aptac-us.org/new/
American Express Open government contracting help: http://govtcontracts.open.com
If you think your business is ready, government contracting can be one of many revenue streams that make your business a success.
Stephen Kilgore is a business advisor with the University of Houston-Victoria Small Business Development Center. Contact him at 361-575-8944 or firstname.lastname@example.org.