Lessons GovCons and Commercially Focused Businesses Can Learn From Each Other
Rose Report: Issue 55
By Ted Rose, CEO, Rose Financial Solutions
Our over 27 years of experience serving government contractors and commercially focused businesses has taught us that B2B and B2G companies are similar in many ways. After all, the federal government is not an industry; it is the largest customer in the world and purchases many of the same products and services as the commercial sector. Nonetheless, companies doing business with the federal government and its corresponding agencies must comply with unique compliance requirements to win and grow contracts. However, that doesn’t mean they can’t learn from the best practices followed by commercially focused businesses. Conversely, commercial organizations that aren’t as constrained by compliance regulations can also learn from GovCons.
Commercially focused organizations are wise to diversify their businesses across a wide range of similar clients, reduce customer concentration, and build specialization within their industry to sustain growth. They can accomplish this by developing their brands and marketing strategies to focus on their ideal clients.
On the accounting and finance side, many government contractors are so focused on their indirect rates that they often miss the details behind what makes up the rates. On the other hand, commercial businesses are more likely to examine the underlying expense accounts but often overlook the summation of the indirect rates. Both B2B and B2G businesses can benefit from reviewing their underlying accounts and the summary rates. When they do, they better understand macro trends, identify specific opportunities to control expenses, and become more cost competitive.
Contractors who track expenses line-by-line are much better prepared to submit lower but reasonable job bids. They can also avoid converting fees into operating costs by paying attention to line items. For example, if the G&A pool cap is 10%, but the actual G&A expenditures are 12%, the 2% difference will be deducted from expected profits, which is not ideal.
Commercial businesses also place a greater emphasis on key performance indicators (KPIs) like balance sheet ratios to ensure that they have adequate liquidity and can reduce capital expenses over time. For government contractors, having a comprehensive set of KPIs to measure progress is just as crucial. While most successful government contractors excel at project reporting (due in part to DCAA requirements), they would do well to develop high-quality management reports centered on their companies’ KPIs and metrics. Commercial businesses often implement simplistic project profitability reporting as they view the additional cost as unnecessary due to the absence of a compliance requirement. Frequently, this results in a lack of visibility into project profitability, which often generates more significant losses than the additional project reporting costs.
While the similarities between GovCons and commercially focused organizations are significant, there are takeaways they can learn from each other. Please schedule a meeting with us if you would like to learn more about how your organization can benefit from the best practices from both sectors.
This content is for information purposes only and should not be considered legal, accounting or tax advice, or a substitute for obtaining such advice specific to your business.
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