Episode 136 – Financial Issues to Consider at the Start of the Year

The government spends billions of dollars each year on goods and services, and by tapping into this vast marketplace, small businesses can secure lucrative deals, gain steady income and heightened visibility. In this episode of The Agent of Wealth Podcast, host Marc Bautis and guest Richard C. Howard dive deep into the world of government contracts.

As a career military acquisitions officer, Howard oversaw $82B+ in DoD contracts, and has advised and trained over 400 companies as a consultant. He’s the CEO of DoD Contract – which guides, trains, and mentors small business owners and sales executives through the government sales process – and the host of DoD Contract Academy Podcast.

In this episode, you will learn:

• The benefits of selling to the US government as a small business.
• How small businesses can find opportunities to sell their products or services to the government.
• How small businesses can stand out in the government procurement process.
• How small businesses and startups can utilize the Small Business Innovation Research Program.
• And more!

Resources:

www.dodcontract.com | DoD Contract Academy (Podcast)  | Usaspending.gov | Sam.gov | Small Business Innovative Research Program | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000 | Schedule an Introductory Call

Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.

Welcome back to The Agent of Wealth. This is your host, Marc Bautis. I’m joined by a guest for today’s episode, Richard C. Howard. Richard is a leading authority on US federal government contracts. As a career military acquisitions officer, he oversaw $82B+ in DoD contracts, and has advised and trained over 400 companies as a consultant. Richard is the CEO of DoD Contract, which guides, trains, and mentors small business owners and sales executives through the government sales process.

Richard is the host of the DoD Contract Academy Podcast, and speaks extensively on the nuance of federal contracting strategy.  Richard, welcome to the show.

Thanks for having me on, Marc. 

I don’t think people even realize that government contracts are out there. Can you start off by explaining this market size, and some of the benefits of selling to the government as a small business?

The Benefits of Selling to The US Government as a Small Business

The US government is the single biggest purchaser of goods and services in the world. When people think about government spending, most immediately think of big defense contractors. But in reality, the government buys just about anything you could think of – from defense and weapon-related spending, to tai chi instruction, to commodities, to food. Think about it like this: Every military base is basically a small town, or city in some cases. All of the infrastructure that goes into that town or city is paid for by the government. And they have a mandate to buy from small businesses.

So whether you’re in – cybersecurity, accounting, legal, you’re selling food, you have a franchise, you have a training business – the government is most likely buying in your area. It is very rare that I find an area where the government isn’t spending money, so the spending is vast. 

The government has to buy from small businesses, yet less than half of 1% of US small businesses are actually participating in the government contracting process, despite the high spending levels.

Alright, so there’s a lot of opportunity here. How does a small business find the contracts?

How Small Businesses Can Find Opportunities to Sell to The Government

Because we’re talking about the government, there is a lot of regulation that exists to ensure there’s fairness and that the public can see what the government’s doing. So everything the government spends money on – with the exception of a couple classified contracting avenues – is public knowledge. 

So, as a small business owner, you should ask, “Does the government buy what I sell?” To find your answer, go to a website like usaspending.gov and begin searching public records to find out what the government spends on. 

Whatever you sell, it probably falls under something called a North American Industry Classification Code, or NAICS code. When you go into usaspending.gov, type in what you sell under NAICS – for example, accounting. The website will suggest different codes that you would fall under. You can click on that, and sort it by small business spending. 

You can quickly see how much the government spends on small business contracts in your industry and area of focus. 

Are these contracts location specific? Does it help if a business is located near a military base, for example, or does it not matter?

It depends on what you’re selling. By the way, government contracts certainly extend past the Department of Defense and military bases. There’s lots of different federal agencies that spend money. 

Okay so once a business owner discovers how much the government is spending in their niche, what’s the next step?

Once you know that the government buys what you sell – if it’s local, they buy it in your state, or if not, you can work anywhere – the next step is to register your company. You can do that at sam.gov. That’s where all registering and most of the solicitations take place. 

So when you go to sam.gov, you’ll find instructions on the screen for registering. Of course, you need to have a legal business in the United States, and come ready to register with your EIN number.

All in all, the process takes a couple weeks sometimes, but at the end of it you’ll get what they call a CAGE code and UEI number – these are federal identification numbers for your business. Once you have those, you can start bidding on contracts.

By bidding, do you mean writing proposals?

Yes.

How Small Businesses Can Stand Out in the Government Procurement Process

What can a small business do to separate themselves from the others trying to do the same thing?

Good question. This is really where most companies fail in selling to the government… 

Once your business is registered through sam.gov, you will begin to see what’s called a request for proposal, or RFP. At that point, a business can begin writing a proposal. But, the government is very regulated in how they buy products and services.

For instance, if I saw an RFP come out that the government is looking to buy a $3 million landscaping contract for base X, I can’t just pick up the phone and talk to someone to get my questions about the contract answered. Now, if it’s a big contract, the government will answer most questions publicly through sam.gov. In those cases, you might get some answers that can inform your proposal.

But otherwise, you won’t be able to set up a meeting with a government worker. You won’t be able to develop a relationship… 

So, before the RFP comes out, there’s something called the market research phase. Let’s say you’re a software developer, and the government is putting a command and control platform together, and you have a great user interface for that. Well, it’s during the market research phase that you can engage with the government if you really want to have a shot at landing the contract later on. Meaning, before the RFP comes out, we want to know who is doing the purchase, and we want to know the details of the opportunity ahead of time.

If you want to differentiate yourself from the rest of the herd, you want to look for things like a request for information or sources sought. When those come out, they’re squarely in the market research phase. At that point, you can set up a meeting with the government. 

I recommend small businesses to respond to requests for information. They’ll answer questions like: 

• How long have you been in business? 
• Do you have past performance?
• What do you think of the approach the government wants to take? 

And, you’ll be able to suggest things. For instance, when you register your business, there are different certifications. Examples include:

• Small business certification
• Woman-owned small business certification
• Disabled Veteran-owned small business certification 

If you happen to have one of those certifications, you do have a leg up, because the government needs to set aside a specific percentage of contracts to those certified businesses. 

But, back to the market research phase, you can actually recommend that the government lists the contract for a specific certified group. So, you’re helping the government write the solicitation, and you can give yourself a leg-up if you suggest a certification you have.

Okay, so you’re trying to influence the decision a little bit. Have you ever seen a case where a small business had a product or service that the government isn’t spending on, but they propose it to them?

Yeah, there are a couple of ways to do that. I would say if you take away one tip on selling to the government, it’s to get meetings and build relationships with the people that actually buy what you sell. There’s a lot of ways to do that, but mainly through research. 

If your business sells a product or service that the government is not actively looking for, but you want to sell to the government, the government needs two things: A requirement, and funding.

The Small Business Innovation Research Program

If it’s an innovative solution of some kind, for example a patent, you can go after something called the Small Business Innovative Research Program, or SBIR. Any government agency that spends a certain amount of money in research and development has got to contribute to this program. So, the SBIR program spends about $4 billion a year on innovative research and development contracts with small businesses.

This is a way to basically propose your product or service to the government, because they have funding in the SBIR program. If the review panel thinks that what you have is innovative, and that it would achieve a government need, you can win one of those contracts. 

Phase one of SBIR is kind of low dollar. Let’s say, for example, you’re creating a VR training system. In that case, phase one might just be a feasibility study. You might propose that the government uses a VR or augmented reality training system to help maintain or fix aircrafts, for instance. Well, that might resonate with the board. That first phase one event is probably going to be somewhere around $100,000-$150,000, which is small for government contracts.

But, what you’re really doing is:

1. You’re establishing past performance with the government, because now you have a contract.
2. They’re now going to help you find people in the government that would potentially sponsor you.

Now you can’t totally rely on the government SBIR office, you also need to put yourself out there to find a sponsor. If you find somebody willing to sponsor, but they don’t necessarily have to have money, they just sign a memorandum of understanding for you to go to phase two. 

Phase two is to develop a prototype, or set up a demonstration. There could be a lot of different things that you’re recommending, but that’s the phase two piece. 

The Small Business Innovative Research Program is really great for getting your feet wet. Even if you have a developed product but you’re modifying it for government use, that would also qualify for the program.

Going back to finding these opportunities, my father actually had a government contract through a larger corporation. He created a pellet that went into 50 caliber ammunition. He wouldn’t get the government contract himself, but General Dynamics or Olin would go through him to create this component of their contracts with the government. Are there opportunities like that out there?

Yes. That’s a really good point. There is a variety of ways the government can buy things from a small or large business owner. For example: 

• Contracts.
• Subcontracting.
• Sole source contracts. 

As a business owner, you need to understand how the government is buying what you’re selling. That’s something that you can do pretty easily with the research tools the government offers.

Let’s say you own a company that is licensed to do HVAC. Over time, you’ve built a relationship with the government office that purchases contracts in construction. From that relationship, you learn that next year, Hanscom Air Force Base is going to be building an office building, and you have interest in installing the HVAC system. But, you aren’t able to take the full construction contract. 

What I recommend you do is look through a website like usaspending.gov to see which construction companies have done that type of work with the government – illustrating past performance – and reach out to them about this upcoming opportunity. The fact that you’re bringing them this opportunity sweetened the pot for them to work with you, involving you in the project.

If you reach out to three companies like that, you’ll get at least one or two bites to form an agreement and go after a large contract together. That’s very helpful for a small business, because the big company can handle the proposal writing, and so on.

Artificial intelligence is all the rage right now. Do you see AI being used to uncover some of these opportunities, or to help small businesses in this process? 

It’s interesting that you bring that up. Two of my recent episodes on the DoD Contract Academy Podcast were about AI in the government space. 

One of them is called Govly, which uses artificial intelligence and machine learning to enable government contractors, OEMs, and distributors to accurately plan for government purchases years in advance

The other is called Rogue, which is an AI tool specifically designed to help businesses write proposals for government contracts. It kind of works like ChatGPT. 

Business Financing and Government Contracts

What happens if a business needs financing to fulfill an order from the government?

First, it depends on the contract. If it’s a SBIR contract, where the business is developing something for the first time, then you can win the contract before you have to start development. But those are research and development contracts. 

So let’s say you win a small services contract that involves employing 20 people. The small business will have to pay those individual employees before the government pays the small business. That’s because there’s about a 90 day turnaround time on invoicing to the government. 

Now, there are certain financing houses set up specifically for government contractors. One thing to know is once you win that government contract, it’s one of the most secure contracts you’re going to have. So a lot of banks know they can count on the government paying the business. 

That’s also one of the reasons companies go after government contracts – because it increases the value of your company.

Are Government Contracts Recession-Proof?

In addition to AI, the other thing that we’re constantly hearing about is this looming recession. At a high level, how is government spending compared to other industries?

Government spending is more stable. I always recommend that business owners – small or large – have one stream of income from commercial sales and another stream of income from government sector sales. The government is spending year over year, whether there’s a recession or not.

But I would say that the government experiences difficulties in different ways, and typically at different times.

Usually, if you have a three-year government contract, for example, you’ll receive that funding month over month. Now, there are times when the government shuts down, or when there is sequestration. The government can terminate a contract for convenience. But if they do, there are regulations to protect the companies that held the government contract. 

That’s good. Well, we’re just about out of time. Richard, thank you for joining me today. You did a great job explaining how businesses can leverage government contracts as well as how to navigate the government procurement process. What’s the best way for our listeners to contact you or learn more about your advisory coaching services?

Your listeners can go to dodcontract.com to schedule a consultation. On the website, we also have courses available. And of course your listeners can check out my podcast, DoD Contract Academy, on whatever platform they like to listen on. 

Great, we’ll link to those resources in the show notes. Thanks again, Richard. And thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review on the show.

The start of the new year is a great time to do a financial check-up. In addition to reflecting back on 2022, you may feel particularly motivated in January to consider making financial resolutions for the future. In this episode of The Agent of Wealth Podcast, host Marc Bautis helps guide you toward impactful improvements by outlining some of the most important considerations to make in a free, downloadable checklist.

In this episode, you will learn:

• How to set, revisit and achieve your financial goals.
• How to accurately determine your savings rate, and how to improve it year-over-year.
• How to review your investment progress and strategy at the start of the year.
• How to revisit your assets and debt to evaluate whether your risk tolerance continues to be appropriate.
• And more!

Resources:

Complete the Checklist | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000

The beginning of the new year is the perfect time to discuss the various factors influencing your planning. If you’re looking for guidance on your financial situation, our team of financial advisors are always here to help.

Welcome back to the Agent of Wealth Podcast, this is your host Marc Bautis. With the new year upon us, now is a good time to take a look at your finances and see if there’s any room for improvement. To help identify what to look at, we are sending out an interactive checklist to our clients. Today, I will share this checklist with Agent of Wealth listeners as well. 

The checklist is called Financial Issues to Consider at the Start of the Year, and it outlines action items in the following categories::

• Personal Issues
• Cash Flow Issues
• Asset and Debt issues
• Tax Issues
• Insurance Issues
• Legal issues

The best way to use this checklist is to download it, review it, and check off anything that may require action on your part. 

The cool thing about the interactive version we send our clients is that when something is checked off, an alert is sent to us. We then can match that with other items we may have identified to be relevant for the individual, and set up a time to discuss.

Instead of just sending out something at the beginning and end of the year, one of these checklists will go out to our clients each month, so they can tackle one financial planning topic at a time. Some of the topics will include:

• What accounts should you consider if you want to save more?
• What should you consider when reviewing your required minimum distributions (RMD)?
• As someone who is working, what should you consider when reviewing your tax return?
• What should you consider when reviewing your cash flow?
• What should you consider before you update your estate plan?
• What should you consider when reviewing your investments?
• What should you consider with your employer provided benefits?

… And so on.

It’s one thing for your financial advisor to recommend that you update your estate plan, but the estate plan checklist we use lists an array of items to consider before you make the updates, which helps prepare for any discussions we’d need to have with a client around that particular topic. 

What to Consider at the Start of the Year

Now, let’s start with this start-of-the-year checklist, and specifically with the personal issues section.

Do you need to assess the progress you made toward your goals last year? 

Everyone wants to know how they’re making progress towards their goals. A lot of people think about this in terms of their portfolios’ performance – what percentage gain or loss they achieved in a given year. Sure, that’s good to track, but you should also look beyond that.

Have you identified new goals for this year or the future? 

It’s one thing to create a financial plan, it’s another to keep it up-to-date. As things change in your life, your goals will often change too. The start of the year is a good time to reassess your goals and set new ones if need be.

Are there any life events that are likely to occur for yourself or your immediate family? 

This could be an upcoming move, a change in job, a marriage, a divorce, a birth, beginning to path to higher education, entering retirement, or even an illness. The reason why it’s important to highlight life changes like these is because they often lead to making big financial decisions.

Do you need to confirm that you are adequately saving toward your goals?

Moving onto the cash flow section, your goals most likely require some form of funding. When reviewing this piece, you should get clear on how much money you have to commit to each goal every year. For example, you might commit to saving $5,000 towards your child’s education, $10,000 towards retirement, $3,000 to make extra payments towards your mortgage and $5,000 to beef up your emergency fund. These numbers will look different for everyone.

Now, in order to plan how much you want to save, you need to know how much you’re spending. There are a couple of ways to do that. 

1. Track every dollar. This is a painful exercise, but I recommend everyone does it at least once. It’s the best way to get a feel for exactly where your money is going. 
2. Reference spending summaries. A lot of credit card companies send out an end-of-the-year spending summary that categorizes your spending, so if you put a lot of your purchases on your credit card you can use that summary and piece in the rest of your spending. 
3. Use our portal to automatically categorize your spending transactions. This is available for our clients to use.

If you still aren’t sure how to target your savings for the upcoming year, you can take a different approach and instead, calculate your current savings rate. 

Your savings rate is how much you saved in a given year (into any type of saving vehicle) divided by that year’s income. For example, let’s say you saved $5,000 in your 401k, $2,500 into a bank account and $2,500 into an investment account. You saved a total of $10,000 for the year. If your income is $100,000 per year, your savings rate is 10%. If your income is $1 million dollars, your savings rate is 1%. 

Everyone’s optimal savings rate is different. It depends on how old you are and what your goals are.

One rule of thumb for retirement is to save 10% per year from the time you start working to the time you stop working. But not everyone listening to this episode or filling out this checklist is heading into their first year of work – quite the opposite, actually. So, I recommend calculating your savings rate from last year and setting a goal to improve it in the upcoming year. If you saved 10% last year, try to save 15% this year. If it was 2% last year, try to save 5% or 7% this year. 

In the asset and debt section, there are a lot of things to consider…

Do you need to rebalance your portfolio, particularly your 401k? 

A lot of 401k allocations got out of whack this year due to the markets. Now is a great time to get that back on track.

Related: Mistakes to Avoid When Investing In Your 401k

Do you need to review your asset location across the accounts in your portfolio?

From a tax perspective, you may want to look at the types of accounts you have (taxable, tax deferred, and tax free) and the types of assets you have in each of those accounts.

For example, an investment that’s expected to be high growth is a good candidate for a tax free vehicle like a Roth. Depending on your tax bracket, you probably want to keep investments that generate ordinary income outside of a taxable account, because that’s where you’ll pay the most tax on them.

Some investments may kick off dividends (qualified), some may generate capital gains.

Do you need to revisit your mortgage strategy?

One of the most common questions I receive is “Should I pay off my mortgage?” Let’s say you have a mortgage interest rate around 3%, and you compare that to the return on a specific stock… It’s never an apples to apples comparison, in terms of risk – as we have seen this year – but now there’s a different decision: If you have a mortgage interest rate between 2-3%, you might compare that to the 4-4.5% return you can get from a CD or Treasury Bill. The risk, in this instance, is closer to an apples to apples decision.

Related: Should You Pay Off Your Mortgage?

Are there debts that you would like to eliminate this year?

You may also want to create a plan for eliminating debt, especially if you have loans that are at a variable interest rate. In those cases, the rate you’re paying now is probably a lot higher than you were previously. It could be a HELOC, personal loan or business line… Look to see if it makes sense to plan to pay it off.

In the legal issues section there is an item that I wanted to point out:

Have any new laws gone into effect that might impact your financial plan?

We have a big one this year in SECURE Act 2.0, which is now poised to be signed into law. The bill includes dozen of retirement-related provisions, among other changes, that can impact you.

Related: What The SECURE Act 2.0 Could Mean for Your Retirement Savings

There are also some year-end items on this list that echo some of the suggestions we make for year-end to-do’s. However, if you didn’t get a chance to take action before December 31st, it may still make sense to consider:

Do you need to review your unrealized gains and losses and create a harvesting strategy?

…And:

Would Roth conversions be beneficial this year?

Everyone wants to get off to a good start in the new year, especially when it comes to finances. Doing that can sometimes be overwhelming – especially if you don’t know where to start. I’ll never forget a piece of advice I heard from Navy Admiral Bill Mcraven, who made a famous speech at a University of Texas graduation ceremony a couple of years back. One of the things he said was to make your bed, every day, first thing in the morning. As simple as it is, completing the task gives you a win to start the day. 

I think you should do the same thing when it comes to getting your finances in order: Get an easy win to gain some momentum. This checklist is a great place to start.

Thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.