Finding new clients requires new skills. Here's how to expand beyond your comfort zones.

From OLG
We have a small business with a number of federal government contracts. We would like to expand to the commercial arena, but have not been able to find a service or method that would provide market differentiation (other than offering lower costs than our bigger and better-known competitors). Would acquiring a firm offering a compatible "niche" be the best move for expansion? In terms of growing federal and perhaps state government sales, would hiring a "consultant" be wise? I am interested in hearing from business owners who have tried both methods. Thanks!

By Maya Payne Smart, CNNMoney.com contributing writer
With federal stimulus dollars gushing down the pipeline, some government contractors are looking no further for their next catch. That’s a mistake, because the government contracting boom of 2009 is unlikely to continue in future years.

Bob Venero grew his IT company from zero to $100 million in sales.

It’s important to diversify into the private sector, says Eric Dobyne, a regional director for the U.S. Department of Commerce Minority Business Development Agency. “If your sales force is really focused on government and federal work, you may have to hire from outside,” Dobyne says. “I wouldn’t say you need a consultant, but dedicate staff to that market. It needs to be a part of your business strategy and you need to have resources dedicated to make the transition.”

But be prepared to wait for results. The corporate sales cycle is generally shorter than government ones, but it still takes time to build relationships with clients. Bob Venero, president and CEO of Future Tech Enterprise, Inc., grew his Holbrook, N.Y., IT company from zero to $100 million in revenue organically. “In 12 years of business, we’ve looked at acquiring nine companies but never did,” he says. “They were overpriced, because someone wanted to retire or the wheels were falling off the bus. It wasn’t worth the debt or risk to acquire them.”

Venero says consultants can help you win government contracts, but you need to beef up your own sales force to thrive in the commercial arena. “Understand that corporate America is more political than government America,” he says. “Relationships with individuals become the most important component to success. With government contracts, you start to collect orders. There’s no real relationship built, because it’s a piece of paper versus a person.”

Robert Wallace, the president and CEO of Bith Group Technologies Inc., a Baltimore, Md., technology company, also says an insider offers the fastest route from point A to point B. For example, if you want to do more business with a specific government agency, recruit from within. “Find somebody who was in the space or who is in there now and will be leaving soon, and have that person join your team in marketing or business development to go back into that market and sell," he advises.

Marcus Carey expanded his company beyond the government sector through persistent networking and outreach.

If staffing up isn’t in the budget, you’ll need to take the lead. Marcus Carey is the owner of Saecur, a Hanover, Md., information security firm that subcontracts for the U.S. Department of Health and Human Services. He decided to be the front man for his company’s move into the commercial sector. “You have to hit the conference circuit, put on podcasts and just generally give the industry or community good content, good information, stuff that they can use,” Carey says. “It lifts your profile. If you give people what they want, you end up getting what you want.”

His information security “community service” includes a blog, monthly briefings at Capitol College, and participation at DojoCon, an information security conference. The outreach helps his company build brand recognition among prospects. Carey relies on virtual assistants in the U.S. and India help keep his costs down: They identify speaking opportunities, draft proposals and even court sponsors for his community events.

Carey is confident he’s expanding in the right direction. “The government contracting market is the most stable, but your margins are really tight because there’s so much competition and people are lowballing each other,” Carey says. “The commercial profit margin is way, way better.”

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Ready to expand overseas? Here's a guide to the resources that can help you get started.

Peter Van Wolvelaerd, Scottsdale
My company has been doing business with the U.S. government, and we have been awarded some new business, in no small measure because of our service-disabled veteran-owned status. We have located business opportunities in Europe with the U.S. government and are trying to partner with a European company. Because we don’t have assets abroad it is very important we work with a local partner. My question is, what are the rules that the U.S. government has for companies when they partner with others? All of our local assets will have to come from our European partner.

By Kathleen Ryan O'Connor, CNNMoney.com contributing writer
Now that business can be done almost as easily in Dubai as in Dubuque, even small U.S. companies are looking abroad for the next great business opportunity. But how do you go about finding a good international partner? It's all too easy to get caught up in scams and cultural snafus.

Step one: Don't fly blind, says Todd Recknagel, president and CEO of Mr. Handyman International. His company launched in the U.S. in 2001 and has expanded into Canada, the United Kingdom, Ireland, China, Japan and Portugal.

"We work with U.S. Commerce Department's Gold Key program," Recknagel says. That program uses the government's offices overseas to help U.S. businesses find suitable international business partners. Potential partners are pre-screened, a huge leg up for any company – and one that helps weed out scammers.

It's formally called the Gold Key Matching Service, and details about it can be found on its Web site or by calling 1-800-USA-TRADE. The program's network of export and industry specialists are available in more than 100 U.S. cities and 80 countries worldwide to counsel small and midsized U.S. businesses on how to successfully export their products and services. The Commerce Department also offers a Platinum Key service that allows U.S. companies to take advantage of longer-term, more customized assistance.

International corporate attorney Richard Jacobson, of the Tampa law firm Fowler White Boggs Banker, also recommends the services offered by the U.S. Commerce Department. The government charges for its services, usually several thousand dollars or more, but for "the first time exporter, it can be very useful," Jacobson says.

It's also smart to connect with local chambers of commerce in your target country. "In Moscow, the Russian-American Chamber of Commerce is a huge organization, which is good for the language issue," Jacobson says. "You will find someone who will speak English or an American."

As for what not to do: "Say I want to sell widgets to country X and I meet someone," Jacobson says. "They might say, 'call my brother-in-law.' I'm skeptical of those. I'd much rather get a referral. That person may be the best for you, but what are the odds of that?"

As you find local partners, be prepared to be flexible in how you conduct your business. Let the locals be your experts, advises Jim Cornish. He's the co-founder and managing director of Ecowash Mobile, a waterless car wash service that launched in Australia in 2004 and now operates in 12 countries, including the United States. Like Mr. Handyman International, Ecowash Mobile uses a master franchise model that allows for local control.

"There are nuances you can only pick up if you've lived there for a while," Cornish says.

Of course, all the reputable connections you can build overseas won't do much if your underlying business plan isn't sound.

"One of the assessments we did even when the economy was rip-roaring was, what are the fundamentals we can do better here?" Recknagel says of Mr. Handyman's domestic operations.

Overseas expansion is a significant undertaking, one that may not be worth it until you've tapped out all your local growth opportunities. "It's a lot of time, money, investment, and sort of chasing your tail, even, when expanding overseas," Recknagel says.

As for rules about what you can or can't sell, the federal government has export regulations, but for the most part, if what you are selling is legal and within that scope, you should be able to go about finding an international partner without interference.

But be sure to pay your taxes. There's a "cocktail party notion" that if you sell your widgets overseas, you can somehow avoid taxes, attorney Jacobson says. He strongly advises against trying to game the system: "Number one, it's tax fraud, and the IRS rules have been all over that maybe since John Kennedy was president. Tax law is all over that, and it's pretty clear."

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If your business is in a target zone, don't miss out on the benefits.

Ros Borden, Miami
My wife and I own a convenience store in a federally designated enterprise zone. We have eight employees and we have owned the store for two years. We are struggling to stay afloat and to hold onto our employees. Can you get us information on how to use this designation to benefit us and our employees? I have already cashed out my retirement money. If we can’t get help, we’ll have to put eight people out on the street.

By Kathleen Ryan O’Connor, Fortune Small Business contributor
Dear Ros: Enterprise zones can offer a powerful array of incentives and tax benefits, but even the best leg up can’t save every business, especially in an economic downturn.

That said, there’s still plenty you can do.

Nearly all of the experts we spoke to say small business owners in an enterprise zone rarely take advantage of all the benefits available to them. That’s not too surprising given the complexity that accompanies some zone designations, which came out of a push in the 1980s to encourage economic activity in depressed areas. In addition to federal benefits, nearly every state has its own enterprise zone programs.

Typically, the programs will feature a mix of state and federal tax reductions, employee-based hiring credits, low-cost loan programs and, sometimes, subsidized marketing opportunities. Earlier this fall, small business owners in San Pedro, Calif. even used their enterprise zone designation as an argument to fight a steep hike in parking meter fees.

In your area, Miami-Dade County, benefits can include a 50% reduction in the sales tax on electricity for up to five years; a job tax credit of between 20% and 30% of wages paid for new jobs for enterprise-zone residents; a 97% reduction of sales tax on business equipment and building materials up to $10,000; a corporate tax credit of 20%; a credit of 96% on ad valorem taxes (a tax based on the value of real estate or personal property) not abated by local governments, and more. The benefits even include a 50% credit on contributions to local community groups.

If you haven’t already, call the Miami-Dade County office of Economic Development. They can refer you to helpful resources. Also, the Small Business Administration offers free small business counseling at its SCORE centers. There’s one right in Miami at 100 S. Biscayne Blvd.

At the same time, experts urge you to talk to an accountant who specializes in enterprise-zone tax benefits. Not every accountant is well-versed in current state and federal enterprise-zone benefits and boundaries, which can change over time. This is no time for Uncle Manny to do your taxes.

In 2003, for example, a year California gave away $300 million in tax credits, less than 10% of potentially eligible businesses actually claimed them, says C & I Tax Consultants, an accounting firm that specializes in tax credits.

“There’s absolutely no reason not to look into this,” says Steve Dotan, president and CEO of the Los Angeles company.

And just because you missed the boat on past credits doesn’t mean that the benefit is gone forever. Most states will allow you to go back several years on returns and amend the information, something Dotan says will often uncover plenty of unused credits that are still available.

“I get a lot of, ‘Wow, really?’”

Plus, some credits are refundable, he says, meaning that if you are struggling and not paying taxes, you can actually get cash back.

Louis Andrianos is a powerful example of how an owner can transform a once-struggling business with enterprise zone incentives and a lot of sweat equity.

He and his father took over a shuttered, failed restaurant in the Roselle, N.J., Urban Enterprise Zone more than 20 years ago. With the help from the zone’s benefits, they expanded the business through the years from a modest but successful diner to a full-service restaurant, banquet and lounge facility.

A lot of things had to come together to make it work, says Andrianos, who runs the business with his father, George Andrianos, and brother-in-law Angelo Vayas, but the UEZ credits were critical, including the ability to make large capital investments tax-free.

Co-op marketing opportunities were particularly helpful, Andrianos says. Ask around to see if any are being offered near you. By bundling advertising for the Roselle UEZ businesses together, they were able to reach a far wider pool of customers.

“Like anything, there is no magic,” he says. “You really have to put your time in and make your contacts.”

Roselle UEZ director Harry Wyatt offers this advice for any enterprise zone business that may be struggling:

— Know where your business is coming from. Who is doing the buying and what are they buying from you? Many business owners are guilty of stocking their store with items they may use and enjoy themselves, but will their customers like them? Just as you keep meticulous records of who owes money to your business and who your business owes money to, you should keep a close watch on which items you’re selling and which items you’re not. Moving merchandise isn’t guesswork; it’s a science.

— Advertise to your target customer base. Word-of-mouth can be very powerful, but it’s not very consistent. New businesses that come in and decide they’re not going to do any advertising are really taking a shot in the dark. They don’t know who they want to market to and they don’t know how to reach them.

— Take advantage of networking opportunities. Being part of a UEZ is a license to network shamelessly with other business owners. Roselle has a monthly luncheon for business owners to meet with each other. This often results in new partnerships between local businesses, allowing both parties to save money. Tie your business into the community it serves and you will be rewarded.

A new business structure sometimes requires a new tax ID.

Nasser Rentia, Falls Church, Va.
I am a sole proprietor and am considering forming an LLC. I currently have a tax ID as a sole proprietor. Do I need to get a new tax ID? The IRS requires a new tax ID when forming an S-Corp, but I wasn’t clear on their rules for forming an LLC.

By Shara Rutberg, Fortune Small Business contributor
Dear Nasser: You’ll definitely want to check with the IRS regarding your specific company, says Will Vehrs, communications manager at the Virginia Department of Business Assistance. In general, it depends on whether or not you have employees, says Bruce Friedland of the IRS communications team. For further information, check out the IRS Web site.

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Jack Witt, Crivitz, Wis.
Can I buy federal flood insurance for my business?

What do you recommend? Leave a comment below with your answer.

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A step-by-step guide to finding government contracts and going for them.

Brian Hall, Westerville, Ohio
I’m a veteran and a minority small-business owner. How do I get more information on bidding for government contracts?

By Blake Ellis, Fortune Small Business contributor
Dear Brian: While potentially very rewarding, procuring government contracts can be a complicated, confusing process. Fortunately, there's a wealth of resources available to help you compete.

Your first option is to seek help from intermediary companies, which are specifically designed to help small-business owners like yourself enter the wide, often intimidating world of contracting – for a fee.

Here’s how it works: you register, and they assess your company to see what you have to offer, how your company differs from others, and how you can best match your strengths with the government’s needs. They'll help you target upcoming contracts for you to bid on. They will also help you with the daunting task of determining a price to bid on a given project.

While these for-profit companies may claim to have the best success at finding jobs for contractors, Chris Isleib, the Pentagon's spokesman for small-business programs, warns that such Web sites are prone to scams, so go only with a reputable agency, and beware of big, vague promises.

Tiffani Clements, a public affairs specialist for the Small Business Administration, agrees, explaining that the SBA provides the same services as intermediary agencies, but for free. On the SBA Web site there are links that will guide you through the process and help you find opportunities, price jobs, and place bids.

Partnering up

If you decide against paying an agency to help you through the contract bidding process but are hesitant to go it alone, pairing with another company could be beneficial. That way, you'll have the experience and skills of two companies to propel you along. Even if you think you can handle contracting without an intermediary’s assistance, partnering may still be a good option for you. Winning government contracts is competitive, so the companies with the best, most relevant references and experience are most likely to be chosen.

Isleib recommends participating in the DoD’s Mentor-Protégé Program, which helps small businesses find larger companies to pair with. You can also search within the Central Contractor Registration database and find contact information for any larger company you may be interested in joining with.

Another way of getting your foot in the door of government contracting is to start out as a subcontractor. This way, you build experience and get your name out in your industry.

Who needs your help?

After you have identified your strengths and areas of interest, you can begin searching for clients. The Small Business Administration'sWeb site is a good place to do this, as it lists local agencies and their current needs. Clements says you should also be checking www.fedbizops.com and the U.S. General Services Administration schedules, which each provide different types of opportunities for federal contracting.

Make contact

Once you find agency opportunities you are interested in, contact the agency to find out what paperwork is required to bid for the contract and what else you need to do to proceed with the application process. Before approaching agencies, devise a plan of attack – prepare questions that will allow you to find out what each agency needs from a contractor, what they are having trouble with, and what, specifically, their goals are.

Try to build personal relationships with people in the agency by providing helpful, organized information about your services. Offering free demos or trials can help prove to the agency that you are capable of undertaking the job. Also, keep in mind that the people at this agency are not the only ones you want to impress. A good reputation is key to procuring contracts, and the more you talk to people in your industry, the more they will talk about you.

Register your company, get certified

After finding the jobs your company is best suited to bid for, you will want to register with the Central Contractor Registration. Since you stated in your question that you are a veteran and a minority small-business owner, Clements says that it would be advantageous for you to become certified as such, which can be done by visiting the Small Business Development Center website’s “SDVOSB Opportunities in Contracting” page. Isleib says that the DoD also has a very successful program for veteran-owned and service-disabled-veteran-owned small businesses; the agency has set aside around 3% of its $330 billion annual contracting budget for these companies. The DoD and the SBA both provide resources for other minorities and women who desire to become certified as well.

One worry many small-business owners have when getting started with government contracting is the potential for being audited or investigated. However, this is a rare event for small businesses, as the government is usually only concerned enough to audit or investigate a vendor on very expensive jobs.

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Remember, success is in the details when it comes to bids and RFPs.

Paul Shelton, Tavares, Fla.
I need help writing contract proposals and contracts. Any advice or recommendations for software?

By Kathleen Ryan O’Connor, Fortune Small Business contributor
Dear Paul: Everyone’s guilty of tossing aside the directions at least once. (So what if the DVD remote also works the refrigerator icemaker? Bonus!) But if there’s one rule that cannot be ignored in writing contract proposals, it is: read the directions. And when you think you have them down, read them again.

Any deviation from the specifics requested could put that proposal you labored over for weeks right into the circular file.

“It all has to be in their order, not yours,” says Roger Cohen, a government contracts consultant in Nyack, N.Y. who has been producing and writing government contract proposals since 1984. “Deviation is a sure path to failure.”

Cohen suggests printing out the directions, grabbing a three-hole punch, a binder, highlighter and pen, and going through the RFP line by line – as many times as necessary.

Paying close attention to the dry, technical stuff doesn't mean you can’t sell yourself in a proposal. You absolutely can – and should.

It helps to see the request for a proposal (or in whatever form the request comes) as a problem that needs solving – and each specification as a question that needs answering. How are you the best person to solve each issue?

“Your proposal is your only salesperson,” Cohen says. “It has to speak for you.”

And don’t worry about fancy – and expensive – software. The experts we spoke to say it isn’t necessary.

Deborah L. Kluge, a Columbia, Md.-based consultant who also specializes in helping businesses write winning proposals, says the word-processing program on your computer is all the software you really need.

She does, however, recommend getting a book on the topic. She says there are many titles to choose from, and most are quite good.

The biggest hurdle for small-business owners, she says, is getting started.

So the best thing – after reading the directions – is to organize your response in outline form, using the headings requested in the proposal and sub-headings as needed, though she says more than three subsections can get overly complicated.

Unsure of the best way to write an outline? She recommends the Purdue University’s Online Writing Lab to her clients.

If your goal is to secure government contracts, Kluge also recommends finding a federal Procurement Technical Assistance Center, or PTAC, which will offer free counseling.

A list of Florida centers can be found here.

There is also plenty of software out there to help you write contracts, but there is just as much free advice on the Web.

The popular site FindLaw has a comprehensive section on contract writing for small businesses.

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