I know many of us are scared and worried about the current business environment. And it’s true — these are more tumultuous times than usual. But from adversity comes innovation and challenges can shake up our normal routines so we are able to see new opportunities. None of us know what the “new normal” will be but challenges can be an opportunity to shape the new normal.
As a business, you have two choices… hunker down and wait for it to pass and hopefully go back to your business as usual or you can look at it as an opportunity to adjust and gasp!… maybe even thrive and improve!
Let me give you an example:
Retail is a difficult market in the first place and during a recession it is even more hard hit. During the 2000 recession, many retail establishments understandably did massive layoffs and cost cutting measures so they would survive.
Target did things a bit differently – it increased its marketing budget by 20% and increased the number of stores from 947 to 1,107. It also made strategic partnerships with Amazon and high-end designers to establish its role as an inexpensive but stylish brand. They also took steps to reduce costs by improving the efficiency of its operations.
The result? Target grew sales by 40% and profits by 50% during the recession and its profit margin which was 9% in the three years before the recession, was increased to 10% after it. (Harvard Business Review)
The key is not to just increase your product line and marketing. What set Target apart from their competitors was they took a hard look at HOW they delivered and made changes to reflect the needs of their customers. For example, it changed their store format to double the space devoted to food and differentiated themselves from Walmart with their designer lines.
The COVID-19 pandemic may be slowing your sales, or even stopping them entirely. Businesses that wait for things to go back to “normal” may not survive. The companies that will survive and may even do better than before the pandemic are ones that adjust and look for opportunities.
And there will be opportunities – and I’m not saying that you should take this as an opportunity to price gouge or take advantage of other’s misfortunes. What it DOES mean is that there are new needs that didn’t exist before and aren’t currently being met and with this “pause” in business, you have an opportunity to look at your business processes and improve and refine.
I know I’ve been doing lots more web-based meetings and my knowledge of technologies to help me with that have improved. I started doing web-based interviews with professionals that support my Retreat business (Retreat & Learn) and that would have never occurred if I wasn’t forced to stop and reevaluate my current methods of operation during the pandemic. I am continuing to explore other ways I can improve my businesses and I am sure these discoveries will be beneficial in the long term.
How are YOU making changes to YOUR business operations that will help your business thrive and grow?
I’ve been struggling with how to make eating well a long-term lifestyle. I feel great when I’m eating more vegetables, less carbs and exercising but it is hard to keep it going week after week so I reached out to Nirit Roddy, certified trainer and nutritionist from Fit With Nirit who gave me some great tips on how to see long-term results — but still enjoy the food I love.
Some of her top tips were:
Nirit also had some great tips for how to deal with picky eaters in your family. How many of you are creating a separate meal for your family members when you are trying to eat healthy? For these and so many great tips on getting healthy without stress watch the video!
Whether someone has lost a parent, a child, or a friend, we want to console and bring comfort but its hard to know what to say. I think every situation is different and what works for one person may not work for another but here are my suggestions based on my experience as someone grieving:
1) Just be there. Its not necessarily what you say (or don’t say). A person grieving just wants to know that people care. Its one of the main reasons we have funerals. Besides letting family and friends say goodbye and come to terms that the person is in fact dead, its also a time to come together and console one another. Don’t worry too much about what you are going to say. Just show up and be there. The simple phrase, “I care and I am here when you need me” is good enough. Too often people distance themselves from grieving people because they are afraid they will say the wrong thing. Don’t be afraid of saying the wrong thing – not being there is much worse.
2) Listen. Being nervous about saying the wrong thing means that sometimes people start running their mouth and don’t let the grieving person get a word in edgewise. Let us talk about whatever we want. It might be about how sad we are or the funeral arrangements or even something unrelated like the weather. We may laugh or we may cry or just sit there quietly but whatever we do, its okay.
3) You don’t need to fix the situation. In fact you can’t. We have to walk through the fire of grief to get to the other side and if we don’t deal with it today, we will deal with it later. Don’t try to defuse the grief by changing the subject away from the person who died. If we start talking about the person who died, that’s okay. It is also okay if we are crying. It is not your job, nor can you stop us from crying or feeling sad. Just be there and listen.
4) Don’t pretend it didn’t happen or the person who died never existed. Because people are afraid of making us cry, they stop talking about the person who died. We WANT to talk about our loved one and hear how they made a difference in your life. We want to hear your memories and we want to talk about our memories. Yes.. we might cry… but that is okay.
5) It is all normal. Each person is different and whatever works for them is what is normal. Some people want to sit at home and cry. Some people may want to actually go out to a party and try to forget for a bit about their grief. Whatever the response it is normal and fine.
6) Offer specific help. Grieving people frequently hear, “Let me know what we can do to help.” It is good intentioned and I’m sure the person offering really means it. The problem is that the grieving person doesn’t know what they need or if they do, they don’t want to ask for it. Instead, offer something specific — “My family would like to come clean your house before the funeral. Is Monday good?” Or “I make a great lasagna. Can I bring some tonight for your family?” With that said, the word OFFER specific help is important. Give us the option of saying no as well. We may be sick of eating our fourth pan of lasagna in as many days or the fear of someone seeing my bathroom that has been sorely neglected while caring for my dying loved one is not worth having it cleaned.
6) There is no timeline. For me, the first few months weren’t too bad. I was busy planning a funeral and cleaning up a life that had been neglected in the month’s leading up to my mother’s death. Plus it just didn’t seem real. There was no possible way she was REALLY dead. It felt like she was just at her house waiting for me to show up. It wasn’t until three months or so after her death that it suddenly felt real and crushing grief set in. By then, I’m sure my friends thought I was handling it well and had moved on to my new reality. So don’t be surprised if three months or even three years later something sets us off and the grief suddenly become fresh again.
And truly…. just the fact that you are reading this post wondering what you can do to help your friend means that you will do just fine. You care. And that is enough.
Welcome back for Part II!
Last post we discussed the various type of contracts (Firm Fixed Price, Time & Materials, and Cost Plus Fixed Fee) and started to get into what we call indirect cost “pools” – Fringe, Overhead and General & Administrative. For this post, we will delve a bit further into what makes up the “pools”, how they are approved by the government and how you use the pools to develop the price per hour you can charge to the government.
So what make up these so called “pools”? On this hot summer day as I write this I wish they were cool places to dip your toe. Alas, they are simply categories of expenses….
Imagine that you have three boxes and a huge pile of receipts. Your accountant would prefer you file the expenses into various “types” of expenses or the three boxes rather than the big pile and the government is no different. Each company can decide exactly how to divide their expenses but this is the most common approach:
Direct Labor Rate. This is easy. You take the salary of the person you are proposing and divide by 2,080 (the number of hours in a year). For example, if you pay someone $50,000 per year, their Direct Labor Rate is $24.04.
Indirect Costs. Indirect Costs are anything that you cannot directly charge to the government such as paying for the employee’s health care premiums or items like rent, accountants or paper for the copier. This is the complicated part and I’ll explain a bit more in depth below.
Fee which is your Profit on the task. This is negotiated within your proposal and can be either a fixed number ($1,000) or a percentage of the billed amount (5%).
So… back to the Indirect Costs. Indirect Costs are further broken into sub pools (or categories). The most common approach to this division is:
Fringe Pool – items such as health care, retirement contributions, vacation, sick, and workman’s compensation.
Overhead Pool – items that cannot be billed directly to a contract but can be attributed to the cost of doing business with one or more customers. For example, computers, rent for billable employees, salary paid to an employee between two projects or utility costs for space allocated to billable employees.
Some companies divide their Overhead Pool into two distinct pools: one for Company Site Employees and one Government Site Employees. This is because it obviously costs us more in overhead costs to employee someone who works on our site than on a government site. It doesn’t seem fair to allocate (and thus charge) costs for Company Site employees to clients who are providing those materials such as desks, space to work and computers for us.
General & Administrative — items that attributable to running your business in general. Examples include the salary of the President of your company (unless the President is a billable employee and then you should divide the salary proportionately into the correct pools), rent for the area where administrative personnel work, accountant and lawyer fees.
Once you have divided your costs into their various pools, you can calculate percentage costs for each pool based on the total Direct Labor costs. See the charts below for a very simplified sample budget and the corresponding “Indirect Rates” that were derived.
Now, once you have your budget for the year you can start to calculate what your indirect rates are…
Let’s start with Fringe. Your total cost for Fringe is $97,000 and your total Labor Base is $340,000. To compute your Fringe Rate you divide Fringe by the Labor Base total for a percentage of 28.5%.
The other indirect rates are calculated using the same methodology as you can see below.
Once you have the indirect rates, you can use them to create your Cost Plus Fixed Fee rates that you bill to the government.
Your proposed budget and indirect rates are submitted to the Defense Contracting Auditing Agency (DCAA) at the beginning of the year and are called Provisional Rates. DCAA will either approve or request a change to what you proposed. Once they are approved you can use those indirect rates to bill the government on your CPFF contracts.
Provisional Rate are just that … provisional. They are based off what you propose in your budget. You do your best to stay within the budget but things happen and your actual numbers are sure to not exactly match the budget. At the close out of the contract you will apply your actual indirect rates (based on your actual expenditures) to the direct labor expended and do a reconciliation between what was billed and the actual costs incurred on the contract. At that point, you will either owe the government back some money (if they were lower than budgeted) or you can attempt to collect additional fees from the government (if they were higher than budgeted).
So… that is your quick overview of how to create a government contracting budget and how it is used to create Cost Plus Fixed Fee rates. This is an immensely simplified view to give you a basic understanding. If you have questions or need further explanation please contact us for our business consulting services.
I have been working in the complicated government contracting world for over two decades as a small business owner. In that time, I have been asked many times by other companies how to develop indirect rates for Cost Plus Fixed Fee (CPFF) contracts. This post will give you some idea of how to start the process. I’ll start with reviewing the different types of contracts in this post and then next time we will address budgets and developing your indirect rates.
There are essentially three different types of funding for contracts.
Firm Fixed Price (FFP) — a set price for doing the work regardless of the actual costs incurred. For example, “We will deliver 10 sandwiches for $100.” If it ends up costing us more than $100 to make the sandwiches we still can only bill for $100. If it costs us less than anticipated, we will make a larger profit.
Firm Fixed Price Contracts should be clearly defined tasks as there is no flexibility in the cost structure.
Time and Materials (T&M) — a price based on a Fixed Hourly Rate plus the Actual Cost of Materials. For example, “We will deliver 10 sandwiches. We will bill for $80 worth of materials and it will take us 5 hours at $50/hour.” If we get the materials for less money than anticipated then we bill at the lower cost. However, the labor is a set price per hour even if it costs us more than we proposed. The actual number of hours expended can be charged, however.
Cost Plus Fixed Fee (CPFF) — a price based on the actual cost of doing the project plus a fixed fee. For example, “We will deliver 10 sandwiches and will charge you the cost of materials plus the cost of the labor to make them plus a fixed fee (profit).” If the labor and/or materials are less than we proposed, we charge the government less than proposed. If it is more than we proposed, we technically can charge the government more than we proposed.
Keep in mind that the government will only budget as much as you proposed and thus your chances of being reimbursed for any additional costs are minimal as your customer will not have the funds available.
You can see that a CPFF is the most complicated type of contract as you have to closely monitor your costs to stay within budget. Many government contractors go for years without ever having a CPFF contract but eventually the time comes and then they are scrambling to bring their accounting practices up to speed.
It doesn’t sound all that complicated – calculate what it cost you to do the contract and then charge that to the government. The complexity comes in calculating what makes up your costs. There are three basic parts to the “cost”. They are Direct Labor (the salary paid to the employee), Indirect Costs (the costs of doing business), and Fee (also known as profit).
Indirect costs are typically the most difficult to quantify. Although every contractor can divide the pools differently, they are typically broken down into three categories: Fringe (health care, retirement contributions, vacation, sick, etc), Overhead (computers, rent for space used for billable employees, salary paid to an employee between two billable projects, etc) and General & Adminstrative (accountants, lawyers, rent for space used for administrative functions, etc.).
What makes calculating your costs even more complicated is that the resulting rate you charge on direct labor is a percentage of the Indirect Costs divided by the Direct Labor.
So if your Direct Labor is less than you anticipated then the costs in the Indirect Pool have to be correspondingly less to meet your projected % Rate. Or if your Direct Labor is higher than anticipated, your Indirect Pool costs must also be increased or you will be paying funds back to the government at the end of your fiscal year. To prevent that tragedy, you MUST track both your Direct and Indirect Costs unfailingly so you can make adjustments as needed to your spending.
Be sure to check back here for part 2, where we will review the Indirect Cost Pools a bit more, how to create a budget, what provisional rates are and ultimately what you can charge the government for all your hard work!
During my Tuesday Sunrise videos (I do these Live every Tuesday on Facebook and YouTube), I shared I was feeling the winter blues. There wasn’t anything really “wrong” but I just felt blah and unmotivated. I asked for ideas to help shake the blues and got some good ones! Share other ideas in the comments to help others.
Megan told her heart-wrenching and inspiring story about how and why she formed the “I Am Enough” movement. The movement prompted a book and helped her gain the confidence that she had a story to tell and she could “inspire and help people.”
The steps Megan shared to help us get from struggle to strength were:
There are so many more details to the two items listed above. Be sure to watch the video below to find out more.
Dr. Ali Lankerani, known as the “Parent Whisperer”, and Clinical Neuroscientist and creator of the Amazing Parents Network gave me three key things parents can do to help their pre-teens reach their full potential. The three items are:
Dr. Lankerani began our talk with this great quote, “Parents are trying to do their best and be great role models who lead by example.” Thank you Dr. L for giving us the tools to do just that!
There are so many more details to the three items listed above. Be sure to watch the video below to find out more.
My first attempt at writing a proposal was a disaster. The client wanted our company to win and had tailored the RFP so we would have a great shot at doing so. We bombed it and lost by just a few points despite the client wanting us to win.
What did we do wrong?
Well lots… we didn’t answer the questions in a way that was easy for the evaluators to give us points, we didn’t format the proposal in way so they could prove we had the answers, but more important — we focused on the features of our company rather than the benefits.
Bottom line is that your client wants to know that your solution is going to benefit them and benefit them better than anyone else.
As you write your proposal don’t forget to continually ask, “So what?”
Let me give you an example…
If an RFP is to provide sandwiches for their employees from 12-1 pm every weekday, you need to obviously state that you will do that. But so will every other competitor.
A feature of your company is that you have provided lunch solutions to ten other companies in the past year that are similar in size to this one. You have a history of reliably providing lunch on time and within budget. You have the experience and know-how to do this.
How will this benefit the customer?
Your benefit is that their employees can rely on their lunch being ready so they can get back to work and improve their profitability and that employee morale is high because of the quality lunch so turnover is less and will decrease their recruiting and training costs.
As you work through the features and benefits, think about what keeps your customer awake at night and make sure your features scratches that worry… that is your benefit and that benefit is what will help you win new work.