Government contracts can prove extremely lucrative for small businesses, but entrepreneurs secure less than a quarter of these contracts. However, this figure should not discourage small business owners from attempting to win such contracts. Winning a government contract often involves a significant investment in terms of research and preparation. Many firms dedicate more than $100,000 to preparation, because the contract can recover this investment and still provide a sizeable profit margin. At the same time, the investment is a risk that does not always pay off in the long run.
Small businesses should tailor their services according to exactly what the government needs. With so many companies competing for a contract, the government can afford to pick and choose the firms best suited for the job. Companies should be able to adapt their services quickly and easily according to the demands of the contract.
Most entrepreneurs should not rely on government contracts as a primary form of income, since the federal budget can change regularly. Diversifying clients provides greater security. When small businesses do rely on government contracts, they can diversify by working with different federal, state, and local agencies.