In 2012, banks and angel investors gave 5.9 million small businesses, start-ups and early-stage companies over $228 billion in funding to grow their companies. The money is flowing. Is it flowing your way?
Cheree Warrick helps businesses create bankable business plans. She explains that there are five parts to a bankable business plan:
1. Market opportunity, where you tell them the problem you’re solving in the marketplace, how many people have that problem, and how many your company could service.
2. Customer acquisition and retention, where you describe how you will: Attract prospects, convert those prospects into customers, service those customers, upsell new products/services to those customers, retain those customers, and get referrals to new customers.
3. Team, where you illustrate that your company has great leadership and a cohesive team that can not only attract and serve customers but also take care of operational issues including accounting, legal and technology.
4. Competitive advantage, where you explain what sets you apart.
5. Financial projections including an Income Statement and Cash Flow Statement
What may be the most intimidating parts of the business plan is also one of the most important. The #1 item that a bank is looking for is cash flow. You have to show that you can pay all your business expenses (payroll comes first, then rent for office space, etc.) plus your home bills (housing costs, food, etc.), plus be prepared to handle an emergency or two. On top of all that a lender wants to see that you can pay back that commercial loan, month after month, year after year.
When reviewing your financial statements and considering your request, investors must answer yes to all of these questions:
- Is this investment something that would go well in our portfolio?
- Are they asking for enough money? Too much money?
- Do we believe there’s truly a market opportunity?
- Do we believe the marketing plan will attract, convert, and retain paying customers?
- Do we believe this team can take advantage of the market opportunity and earn the cash flows and margins they state?
- Do we believe we’ll get our money back?
Seems fairly straightforward, Cheree. So how do people fall short when they’re trying to apply these recommendations?
They don’t have anyone to talk with or strategize with or review their plan. OR they bring it to the banker and expect the banker to review it and tell them what’s right or wrong. Bankers don’t have the time to do this extensive strategizing to take this information and apply it to their business. Bankers tell me they want to lend money, but entrepreneurs come to them so unprepared, they don’t believe the entrepreneur will take the capital the bank gives them and do the right things with it – or make their business grow.
Second, people want to use a fill-in-the-blank template and get bankable results. It doesn’t work that way. You must be able to speak about your business in such a way that it causes the bank to say, “Wow! What this person is doing is dynamic.” And you won’t get that from a fill-in-the-blank template. You get it from being able to speak or write about your business in a unique way that draws people in.
The final point I have is this: People only lend to you when you don’t need the money. If you’re desperate for money, there are alternate sources of funding. If you’re keeping up with your bookkeeping, you should know that a cash crunch is coming. Keep your head out of the sand. A great business owner pays attention to every part of the business, not just the new customer who’s coming through the door.
When you’re doing well and you know you could grow your business 10X with a more aggressive budget, that is the time for a bankable business plan.
Thank you to Cheree Warrick of 1 Billion in Financing for these practical tips. Cheree writes business plans that banks approve. The goal of 1 Billion in Financing is to help 1,000 entrepreneurs raise over $1 billion in capital for their growing enterprises. For more information, please visit http://1billioninfinancing.com/.
This guest post from Matt Falls is part of his comprehensive five-part guide called “Build Relationships That Create Revenue,” available at http://matthewfalls.com/build-relationships-create-revenue/ and was adapted and republished with permission.
(Matt has been featured on this site before, representing the BusinessUSA.gov website.)
There’s an event next week. Perhaps it’s an Industry Day, a program office is giving a seminar, there’s a networking event sponsored by a trade association or economic development agency, or perhaps you’ve identified a key contact and you want to set up a meeting. Maybe you are attending a trade show or industry event.
Do some research. Who is sponsoring? What programs or panel discussions are being offered? Can you contribute? Call the organization and ask how you can help with the event. Your research on the organization can tell you what programs they like to offer, and what its membership does. Becoming a resource to them gives the organization the confidence to introduce you to an opportunity.
Focus on your goals for this event. Do you want leads, an introduction to someone, or just to build your brand? You’re not going to close a sale, so relax. You can take the time to nurture a relationship. Set performance metrics, e.g., I expect to have x substantial conversations that lead to an opportunity, or I expect to collect x business cards. Setting metrics allows you to objectively evaluate your performance and the usefulness of the event. Evaluating each event provides the information needed to make the most of your time, to focus on those events and organizations that provide the most value for you.
A SWOT analysis of your strengths, weaknesses, opportunities and threats will give you the information and strategic focus needed to craft a statement about your organization, what it does best and why the listener should care. People will want to know what you or your organization does and you need to have a clear vision that ties into your goals for this event.
When you meet that first person, pay attention to them. Look them in the eye, shake hands firmly and show an interest in their business card and what their position is in the organization. Figure out what concerns this person; have a genuine interest in what they are doing. Ask about recent press releases, new initiatives they may be engaged in, talk about what they hope to get out of this event.
Make the focus on them. Don’t forget the human element of relationships. It is very important to understand what is possible and what the person that you are speaking with is capable of doing; if not, you’re wasting your time. The more you focus on the other person, the faster you will have the information to make a determination about this person.
The other person will ask about your business. Because you spent the time focusing on the other person in this conversation, you now have the information needed to craft your response around how your company’s product or service can be a benefit to the company. Talk about next steps. Leave the conversation with an action item. Write it on the back of their business card when you get a chance. Tell them that you will respond to them the next day.
If you get so lucky as to uncover a potential need and opportunity, try to learn who will influence the solution and the decision-making process. Visit each of those buying influence’s LinkedIn profiles and pay close attention to whether they are linked to any of your competitors. If so, then that’s a red flag.
Sometimes there really is no connection to the person; you cannot provide what they need. Ask for a referral. Do they know anyone who has a need for your product or service? If so, ask for a specific email introduction to their contact referencing the point of interest as an action item for this conversation. Write the contact’s name and point of interest on the back of the business card.
The event is over and you have a handful of business cards. Hopefully you wrote the action items on the back of the cards. Review the event. How did you perform against your goals? Be objective about the event. Was the event not a good fit and could more research have told you that? Did you spend too long with one person and you didn’t make enough other contacts? Keeping performance metrics allows to objectively evaluate the event, your preparation and your pitch.
Add the cards, points of interest and action items into your contact database and assign tasks for follow up. Always follow up when you say you will. It goes to your credibility, reliability and reputation for being able to deliver. These are some of the most important aspects in a good relationship and to gain the confidence of people who might be able to help you in the future.
At this point it’s time to cultivate these relationships, bring value to your contacts, assuring that they see you and your company as a valuable resource in their network.
Matthew Falls helps emerging companies that need a seasoned executive to fill out their senior team. He focuses on driving organic revenue, tapping the expertise of employees to reduce costs, creating innovation teams that transform ideas into highly profitable products, inspiring teams to win more business and creating internal controls and cost systems that sustain profitability. You can email Matthew to learn more.
The House Small Business Committee stated at a hearing on March 5 that preliminary data suggests the federal government met the goal of awarding 23% of prime contracts to small business in FY 2013. This is the first time the government has done so in the past decade.
As we previously reported, according to SBA’s annual procurement scorecard the government awarded 22.5% ($89.9 billion) of prime contracting dollars to small businesses in FY 2012. The government awarded 21.65% of prime contracting dollars to small businesses in FY 2011.
The purpose of the March 5th hearing was to discuss several recent bills seeking to expand small businesses’ access to federal contracting dollars. One of those bills, the Greater Opportunities for Small Business Act (H.R. 4093), sponsored by Sam Graves (R-Mo.), Chairman of the House Small Business Committee, would increase the small business prime contracting goal to 25% and the small business contracting goal from 36% to 40%.
Interestingly, one of TAPE’s primes reported that a recent procurement they were competing on had a 65% small business requirement!
As always, this is seemingly a good thing for small business, but could be problematic. For example, will the contracting officers enforce this larger standard, and how will the actual percentages be established? It’s likely that large businesses are going to take more business to task order contracts, or even add to existing contracts, rather than steer new work to new contracts that will have bigger set-asides.
Another potential issue will be pass-throughs (charges that primes levy on top of the regular billings from subs). Currently, some large businesses are pretty efficient about “subcontractor handling.” If this new legislation causes the large businesses to perceive it’s affecting profitability, the large businesses could simply make the pass-though higher to equalize the profit. What this does is increase profitability for the prime, but really lowers the amount subs can hire people at because the rates are lowered to the sub (to allow for the higher pass-through).
In general, making the 23% goal is a monumental achievement. The goal had not been met for a decade, and the Administration is to be praised for the concerted effort that went into getting there. Good news, for sure.
This is a guest post by Richard Lewis, Financial Engineering Counselors, Ltd.
A purchase order finance (PO finance) and/or factoring relationship has several scenarios and nuances. Briefly, PO finance is used primarily where “product,” manufactured-assembled (OEM) and/or distributed, is being sold to a credit worthy customer. The U.S. Government and its agencies are a “credit-worthy” customer.
A manufactured product is more difficult than a distributor type product for PO financing because the overall worthiness and capabilities of the manufacturer/assembler and parts suppliers are also taken into consideration to supply the necessary components on a timely basis. With distributors the end product may be pretty much known, thus entailing less delivery and acceptance risk.
For example, Dell computers are a known quantity and delivery is pretty much assured from Dell. On the other hand, if a company is manufacturing its own computers, the quality and assurance of the parts, drives, chips, etc. must be taken into consideration, as well as the company’s capability of putting them together in the prescribed product; memory, speed, etc. must all satisfy the terms in the RFP or contract.
The PO finance company finances the purchase of parts from the supplier by issuing a letter of credit, guaranty, or cash payment directly to the supplier, as determined by the specific situation. In any event the PO finance company wants to receive its payment/reimbursement as soon as product receipt is acknowledged and the acceptable invoice submitted.
A crucial determinant is the FOB. FOB stands for “free on board,” and is a contracting term that relates to where the product must be delivered. If the product is billable at delivery point, as opposed to when received and properly installed, it’s much easier to factor. For example, if a widget is manufactured for the US Army for use in Afghanistan, the widget will be easier to finance if its FOB is domestic, such as the factory or military base/warehouse, etc. If the FOB is Afghanistan, transportation, delivery, and acceptance becomes more of an uncertainty, risk, and is substantially more difficult to finance.
Before a contract with the U.S. Government is executed, carefully read the contract for details about FOB, invoicing and payment. A little buried clause like FOB could upset the whole apple cart, at least the financing. Once the contract is signed it’s significantly more difficult to get a modification/amendment, even if it’s mutually agreed upon and makes common and business sense. The Government is the Government.
Where does the factor fit in?
PO financing almost always needs a factor on the back end to take them out, but factoring can stand alone as its own form of financing. A factor legally purchases the invoice and advances a percent of the face amount to the company. With the U.S. Government as customer, it is usually “up to” 90%. It may be more or less, more often less, dependent on the specific situation. For example, the company submits an invoice for $100,000 for the widgets that have been delivered and receipt acknowledged by the Army. The factor will then advance the company $90,000 for the company to use as it sees fit.
In the case of PO financing, say the cost of the widgets is $70,000 (paid or otherwise guaranteed by the PO finance company). The factor will pay the $70,000 to the PO finance company and make available the $20,000 difference to the company.
When the Army pays for the widgets, usually within 30 days, it pays directly to the factor as specified under the Assignment of Claims Act of 1941, as amended. The factor reduces the outstanding on that specific invoice, deducts its fees and remits the balance to the company.
A company may factor some or all its contracts and invoices under the specific contract, at its sole discretion. Agreements with a factor may or may not have monthly minimums and length of agreement.
The cost: The fees and charges vary greatly and can vary anywhere from a singles digit annual rate to 30+% annually. Factoring is more expensive than bank lending and PO financing is even more expensive because of the completion risk factors and the financier taking the financial risk.
Richard Lewis is a consultant with Financial Engineering Counselors, Ltd. FEC is a diverse financial advisory firm that assists government contractors in obtaining their working capital needs. You can contact him at 703-992-8988.
This is a guest post by Richard Lewis, Financial Engineering Counselors, Ltd.
Factoring is probably the most prevalent financing means for start-up and small to mid-size contractors. Factoring is the process wherein a factor, either bank or non-bank, legally ‘buys’ the invoice to your pre-approved customer. The factor will traditionally advance between 70-90%, almost immediately, thus providing the client with immediate cash flow for business usage.
When your customer pays, they pay the factor directly. The factor reduces the amount outstanding on that particular invoice, deducts its fees, and remits the residual balance to the company. In factoring, one of the primary components is the “credit worthiness” of your customer, i.e., their payment history and overall credit health.
Example: The company invoices a school district for work completed, $10,000. The factor will advance; say $7,000, 70% in this example, usually within 48 hours. When the school district pays, they will pay the $10,000 directly to the factor. At that time the factor remits the balance, $3,000, LESS interest and fees, to the company.
The problem with bonded contracts
During the financing process the financier has loaned or purchased the invoice and the outstanding payment belongs to the financier. The problem with “bonded” contracts is that the bonding company has a lien, the “first” right to payment, in the event of a default. This risk is not one that most banks or non-bank financiers will usually take. When and if they do, funding becomes that much more expensive.
To help alleviate this problem some bonding companies will “subordinate” their interest to the amount outstanding on that contract (invoice) to the factor. In the above example it would be $7,000.
If there is a bonding clause in your contract, there are a few requests that can be made when you negotiate the final contract:
- Ask the customer to release the bonding requirement because of both the difficulty in small businesses obtaining bonding and then the inability to get financing when bonding is obtained. Ask!
- If the work is as a sub-contractor, many prime contractors will be bonded and as a sub you may qualify under their policy. Again, ask! It doesn’t hurt.
- Request that the bonding company subordinate their interest only to the amount outstanding to the financier. With a yes, there should be no or few problems to moving forward with financing. It never hurts to ask! Please note: many/most will not subordinate their interest.
If none of the above work, there may still be some alternatives:
- Finance only those contracts/jobs that are not bonded
- There are a few financiers that will fund ‘bonded’ accounts receivables. But they can be very expensive, sometimes up to around 5%/30 days.
Richard Lewis is a consultant with Financial Engineering Counselors, Ltd. FEC is a diverse financial advisory firm that assists government contractors in obtaining their working capital needs. You can contact him at 703-992-8988.
Major corporations often pay their CEOs millions of dollars in salary, which may seem enormous to the average Joe, but are pretty much in line with the size of these enterprises. For executives of government contracting forms, things are not that simple. Congress and the FAR council are working on a law that will put a new cap on contractor salaries.
As the administration has slowly tried to put the squeeze on contractors, they have used procurement approaches like “lowest price technically acceptable” (LPTA) to affect the cost structures, and also adjusted organizational conflict of interest rules (OCI) so that there has been a wave of divestitures (TASC from NGC, Leidos and SAIC split, etc.).
This pay cap approach directly targets “allowable costs” (an arcane term that refers to what can legitimately be used to build up indirect rates under DCAA rules), by limiting salaries. Amounts that exceed that level will still be tax-deductible as a true expense, so there will be no change in taxes filed with IRS, but you can’t bring these amounts into your indirect rates that the government pays you.
While this will have the effect of theoretically lowering costs, as with all things there are offsets and so forth. I foresee that all of a sudden, more costly executives will find themselves targeting commercial, and state and local accounts, while the federal sector will be adjusted accordingly. The notion that this will actually affect pay rates is naïve, actually almost laughably naïve. The real effect will be felt in smaller and mid-tier companies, who don’t have the alternate accounts to offset and cannot move their executives around, and so will have difficulty attracting the real high-end talent.
From the work I did on service level agreements that lead to what our company calls Behavior-Based Performance Metrics Methodology® (what you measure is what will be paid attention to, and the converse is also true), I predict that lowering contractor pay caps will produce “unintended consequences” – negatively affect small businesses, and further, lead to a lowered talent pool in federal sector – is that what we really want?
This is a guest post by Jon Williams, Partner, PilieroMazza PLLC
As a small business contractor, your small business status is one of your most important assets. Maintaining your small business status opens up set-aside contracting opportunities, it is a condition of eligibility for the various SBA procurement programs, and it also allows you to avoid certain reporting and other requirements that apply to large businesses. Small business status matters to large businesses as well, who depend on smaller firms to meet subcontracting plan requirements and to open up opportunities for teaming and joint ventures on set-aside projects.
In short, size matters for government contractors. It is therefore critical to ensure you understand how the SBA determines small business status.
Small business status is first judged by a fairly straight-forward assessment of annual revenue or number of employees, depending on the industry. From there, determining size can get significantly more complicated if a firm has affiliates. Affiliation may cause a company that is small on its own to be deemed “other than small” and, thus, ineligible for the various benefits available to small businesses in federal contracting. Affiliation can ruin small business status in this manner because the SBA lumps your annual revenue or number of employees together with the revenue or employees of your affiliates when determining if your company qualifies as small.
At its most basic level, affiliation is about control. In assessing whether a business has affiliates, the SBA is looking to see whether one firm has the power to control another, or if a third firm has the power to control both. Control can be affirmative or negative, and it does not matter if control is exercised so long as the power to control exists. An affiliate can be any business entity, whether for profit or non-profit, domestic or foreign. Affiliation can be ongoing or specific to one contract, and, in either event, affiliation is determined at a specific point in time (generally the date you submit your initial offer with price or application for a set-aside program).
The SBA’s affiliation rules explain that affiliation may arise in several scenarios. For example, affiliation may occur because of common ownership or common management between two or more firms. Affiliation may also arise based on close family member who control multiple firms, economic dependency or financial assistance between businesses, or numerous contracts performed together. One of the more popular forms of affiliation alleged in size protests is ostensible subcontractor affiliation. This form of affiliation is contract-specific and arises based on how a prime contractor and subcontractor have structured their relationship for a particular project. And when all else fails, the SBA’s rules provide a catchall to find affiliation under “the totality of the circumstances.”
Our firm recently gave a webinar explaining the different affiliation rules in more detail. We also discussed common pitfalls and ways to mitigate or avoid affiliation. The link below will take you to our resources page where you can download the slides or listen to the audio from the webinar. If you participate in set-aside programs and contracts, whether as a small or large business, I recommend that you check out the webinar so you will have a better understanding of how to avoid losing your small business status due to affiliation.
Direct link to download the PowerPoint slides: Understanding the SBA’s Affiliation Rules
You can also watch the presentation on video here:
Congresswoman Anna Eshoo and Congressman Gerry Connolly (who happens to be the representative of my local area) have proposed draft legislation that would overhaul how the federal government develops its IT projects.
Let’s look at the two key things they’re trying to do, and then tackle the third issue of how they’re proposing to pay for it.
First, they want to create an office within the Executive Office of the President (EOP), which would basically review major IT plans. Currently, every IT expenditure above a certain cost or that has mission critical importance falls under a requirement to have budgetary line items established well in advance and placed in a portfolio system called Exhibit 300. From the OMB website: “Under the Clinger-Cohen Act of 1996, agencies are required to submit business plans for IT investments to OMB that outline the steps they have taken to ensure they have adequately planned each investment to promote success.”
This new legislation will go beyond justifying the money, and get at how you’re actually going to carry out the project. This stems out of the technical problems with the launch of the Healthcare.gov website in October 2013. Healthcare.gov was slated for failure from Day One because the government, which is simply not equipped to do this, tried to do the systems integration. Systems integration is a complicated discipline requiring a lot of knowledge about how to put pieces together. No matter how talented our government IT professionals are, that’s not what they’re about.
The more companies and agencies have to describe and justify the follow-through of what they are planning with their IT ventures, the more likely you are to catch these things in advance. Of course, bureaucracy is a double-edged sword. You’ll catch a few big things and avoid some disasters, but you’ll also create delays and problems in getting numerous other things through.
The second thing this new legislation would do will allegedly be good for small businesses. It will raise the threshold on “streamlined contracting process,” from $150,000-$500,000. (From some people’s perspective this is a really good thing. Not working for a big company, I don’t have the same stake in the game.)
Streamlined acquisition processes are designed essentially to cut away all the wheat and chaff, and come down to what is often a very limited competition. The reason non-streamlined acquisition takes so long is because you have to have all the terms and conditions, and publish to a large community. Even with an IDIQ, a more limited community, it’s still a lot of people. With a streamlined process, you only have to pick two or three bidders, and no one else gets a shot at the job.
Unfortunately, this change is just as likely to produce crony-ism as efficiency. While it’s good to hire the people you know best and trust, are they automatically going to be the best for the job?
We have to realize that a lot of these $500,000 projects represent the bulk of what becomes task orders of IDIQ contracts. So for the big guys who are living off these as task orders, if we force these into the single acquisition process, the large companies will just bundle more work, making these contracts less accessible to small business. There’s always going to be a way for the big businesses to figure out how to keep their work and get around these new ideas. They big guys got big for a reason – they’re successful at doing what it takes to win business.
Lastly, let’s look at how Eshoo and Connolly propose to pay for this new office in the EOP, and that is to “repurpose” surplus GSA fees. Currently, everybody who has a GSA multiple award contract pays GSA a finder’s fee if they get any work out of the contract. GSA goes through the trouble of doing the contracting, the agency orders off that contract, and gives GSA payment in return. However, GSA may go about collecting more money than it costs to execute that particular contract, e.g., there’s a ton of work under IT70, so the money collected from IT70 contractors may in turn be redirected to cover the costs of contracting in an area with fewer transactions.
So while it seems like extra money that’s up for grabs, it’s actually not. The fact is that the GSA has built a structure based on knowing they can move around these excess fees to cover costs for things they need to do – things that Congress has asked them to do. It’s not “free money.” We can’t just use that money without having detrimental effects on something GSA is doing with that money. Something that is currently being supported will no longer be supported.
IT procurement is definitely in need of reform, but in my opinion, so is this bill.
GSA recently released the news that they have canceled the GSA show for the second year in a row. Past shows have peaked at over 10,000 attendees, including agency and military contracting professionals and 1,000 GSA schedule holders featured as vendors in the exhibit hall.
The reason, they say, is “In the current fiscal climate, agencies and businesses alike continue to make tough spending cuts and operate under reduced travel budgets. After careful review of projected attendance and continued travel budget reductions, GSA has made the decision to not hold an Expo in 2014. GSA remains committed to addressing the need for training and will identify the most effective way to offer Expo 2015 to deliver better value and savings for our government partners, our vendors, and the American people.”
So what is a GSA schedule holder to do with the $5,000-$50,000 budgeted on a booth, drayage, 10,000 give-a-ways, travel and time?
Here are a few fresh ideas which could keep your name brand in front of your client – and your message.
- Research where the winners are closing deals, build an action plan and execute it: Instead of waiting until May, when the GSA show normally happened, to build a lead list, why not perform a competitive analysis? A competitive analysis that is based on real contracting data can give you a great picture of what has been happening in your industry, both on GSA schedule and off GSA schedule, who is buying from whom, and where are the hot spots. This way you can focus your efforts on the exact buying offices and agencies who are spending money on your type of product or service. Whether you hire someone or do it yourself, it’s a great benchmarking exercise.You don’t have to wait until May to build an federal sales action plan that will focus your efforts to make the calls, send the emails, perform webinars and present capabilities briefings. Instead of designing a booth and traveling to the show, you will be spending time building relationships with the right clients – right now.Note from Bill: Another option might be local shows in a smaller venue, with fewer attendees but way more focus on exactly what YOU’re selling.
- Build your brand through ethical email blitzing: Instead of spending money on trade show trinkets and literature, consider building a regular, strategic emailing campaign with a weekly article utilizing the latest software and “landing page” techniques. This way, you can track your weekly results, click-through rates, and sales.Note from Bill: Or you could start a technically-oriented blog like this one, and increase your activity on networking sites such as LinkedIn and Twitter. Building up your “personal brand” as a well-connected and respected expert really goes a long way towards building your credibility and making it quicker and easier for new contacts to trust you.
- Create a video featuring your products, services, best values, and your story: Instead of building a booth this year, develop a video for your website featuring your products and your services. Don’t forget the story of your business, which the government is very much interested in if you are a 8a, SDVOSB, woman-owned, disadvantaged, veteran-owned or HubZone business. When a government employee needs services/products like yours, they can quickly watch a demo of your product or an introduction to your key subject matter experts showing their knowledge, past performance or capabilities!
Consider these three steps in 2014 to focus your sales efforts and overachieve your sales goals without the GSA show. Whether the show comes back in 2015 or not, you’ll be ahead of the game by building a personal relationship with your focused customer base right now. When the big proposal comes out, you have a much higher chance of winning because you know the client and better yet, they know and trust you.
For further information on training, a competitive analysis, a federal sales action plan, an email campaign or a video, contact Eileen Kent, the Federal Sales Sherpa at 312-636-5381. Federal Sales Sherpa is a brand of Custom Keynotes, LLC.
As I mentioned last week in Eileen Kent’s guest post, Don’t Fish Alone in Federal Waters, “Most businesses use consultants at one time or another. It’s helpful to remember that ultimately you’re in charge of your business. To get the most out of your consultants, be very clear about your expectations, deliverables, and success metrics.”
Business development consultants extend your reach. While a full-time employee might be out of your budget right now, it may also be more than you need at this stage. You might just be trying to figure out if there’s really a market there for you. In either case, you can hire a consultant for a very limited engagement and that’s going to be a better fit.
You’re in charge of your business
A consultant should be a person with very specialized knowledge that you’re hiring for that purpose alone. That being said, just because consultants give advice, doesn’t mean you have to listen. But you do have to measure.
They may know this new customer base better than you, but you know your business.
Let’s say a particular customer is very price-conscious, so your consultant goes in and sells your product as if it’s the lowest-priced option around. Well, if your positioning is all about your technical expertise, and how you deliver features others can’t, then selling based on a low price will just set you up for a disconnect down the line.
What to include in a consultant’s contract
It is every consultant’s goal to provide advice that hopefully will lead to revenue, profits, efficiency or something else that will your business. If you don’t define that something before you engage them, and establish how YOU’RE going to measure whether or not they achieved that goal, then you’re just throwing your money away, and it’s a completely random occurrence whether you’re going to get value or not.
A consulting contract should specify how much is going to be paid, on what basis, how success is measured, and how success is related to the payment. The two most common payment methods are by the hour/day, or a retainer that pays a flat amount of money, usually every month.
You need to be sure that there are termination clauses, and that you have the option to terminate for convenience, i.e., because you just want to do so. That’s the legal terminology for termination that doesn’t have any rationale, versus termination for cause, i.e., because the consultant did something wrong. (By the way, extending similar privileges to the consultant as well gives them the feeling that they can tell the truth – and you really want consultants who tell you what you need to hear, not what they think you want to hear.)
In the federal sector you do have to be careful when you tie accomplishments to payments, because certain forms of commission, while perfectly fine for salesmen, are not okay for federal consultants because of perceived organizational conflict of interest (OCI) issues, and can cause problems with contracts or FAR regulations. Consult a federal legal practice attorney for details. You must be very aware of the rules of the road or you could get yourself into hot water.
At this point you need to establish success metrics – measurable ways for you to identify whether your consultant has, in fact, been successful, and then determine if and how you will tie payments to that.
A common success metric for a business development consultant is how much revenue they brought in, but it’s not the only possibility. You may be looking more for introductions to key contacts, or to build recognition in a particular area. Whichever metric you choose, ask the consultant to report back to you on that.
We’ve talked specifically about business development consultants, but whatever the consultant, the key to remember is that consultants may sometimes tell you things that are not right for you. At those times, you need to be completely aware that you don’t have to take their advice, even if you’ve already paid for it!