I see a lot of people on YouTube, LinkedIn and Reddit promising if you pay for their training course you’ll start winning Government contracts right away and make a ridiculous amount of money each month. Be cautious. I’ve been a Government contractor with large companies, small companies and my own company. There is no “get rich quick” scheme in Government contracting. There are companies who get lucky and win a contract quickly so lets walk through what usually happens based on my observations and experience. You win a contract to deliver 100 Flux Capacitors as a “broker”. So you sign the contract with the government. Your supplier quoted a 90 lead time for delivery so you quoted the Government 120 day lead time. That sounds reasonable. So you contact your supplier to issue the PO. Your a one person company so you don’t have a lot of the company infrastructure established yet because it cost money, but now you need to create a PO so you invest in Quickbooks or something similar. Now you’re ready to issue the PO to your supplier. Lets say that process took 3 days to resolve. So you supplier reviews your PO and about a week later they tell you they have issue with your Terms & Conditions (Ts&Cs). So you spend another 2 days negotiating and resolving your Ts & Cs. So now we’re 12 days into your lead time. Its common for a supplier to require an upfront deposit or full payment upfront for a new supplier. So they send you an invoice for $150k stating they’ll start work as soon as they receive payment. So now you have to go to the bank and ask for a lone to pay your supplier. The bank wants your house as collateral, but your not real happy about that. Or maybe you don’t have enough collateral for the bank to give you a lone. Now you’re stuck and your 19 days into your lead time. Let’s say you got lucky and found someone to put up the $150k for you. So you pay your supplier and he gets started. Now his 90 day lead time clock starts counting. Let’s assume your supplier is ready to deliver on time. So you’re at 109 days. Your supplier gets the parts shipped and at 112 days you have delivered everything, but you still haven’t made a dime. Now its time to invoice the Government, but you didn’t know you need an account in Wide Area Work Flow (WAWF) to invoice the Government. So you spend a couple days getting the account set up and submitting your invoice. So now you’ve worked 115 days without pay, your $150k in the hole and waiting for your invoice to be paid by the government. Government payment terms area usually 30-45 days. With a small business they usually give 30 day payment terms. So for 115 days work you have made about $30k minus expenses. That’s assuming a 20% markup. That doesn’t sound too bad, but remember 15% of that goes to Small Business taxes which you have to pay quarterly. Now its time to start again and find your next order. You were so busy fill you last order you didn’t have time to find your next one. Hopefully you can win another order before the money runs out.
I know how people think. I’ve had a hundred people tell me they will do things differently and won’t be that unprepared. I don’t care how prepared you are you will run into something you didn’t know about or weren’t prepared for. I have seen a lot of company win a contract and when that contract is over they go out of business. The gap between one contract ending and starting the next kills most small businesses.
I’ll do another post soon that gives an example of an IT or Engineering company that falls into a similar trap.
Author: Phil Davidson
I have worked in the Defense Industry as a contractor for over 20 years. I do Business Development for a small aviation company right now, but I have worked as a full-time and part-time consultant over the years. I decided to redesign my website as a place where I can share information about my experience and help companies come together for working together and teaming.