The government is on target to deliver on its aim to award a quarter of all central government business to SMEs by 2015, according to August 2013 figures. Direct spending with SMEs has increased from £3 billion in 2009 to £4.5 billion in 2012-2013, and helping smaller businesses compete for public contracts is part of the government's economic growth strategy.
In spite of this, many businesses seem to have a default setting of avoiding public sector clients. The public sector’s reputation for byzantine procurement procedures and opaque chains of command tends to put off many businesspeople.
The reality, however, is somewhat different. While it is important to remember that the public sector is suffering from cutbacks, it spends significantly and increasingly with SMEs and there are still pockets of growth.
Launching new products
“If you have a new product or you’re looking for a new market, then it makes sense to pursue public sector leads,” says Clive Lewis, Head of Enterprise at the Institute of Chartered Accountants in England and Wales (ICAEW).
His key piece of advice is to become familiar with the procurement processes at all levels because there can be a greater level of bureaucracy when selling into local authorities, schools and NHS Trusts. “If you have a relatively small contract, you have one set of rules. If you get above a certain level, then procurement rules and procedures change,” says Lewis.
Nonetheless, the government is making an effort to attract small businesses and there are some important upsides to public sector jobs.
“In spite of the cutbacks, public sector bodies and government departments are not going anywhere, so if you can establish a relationship, it could be one that will last a long time.” Clive Lewis, Head of Enterprise at the Institute of Chartered Accountants in England and Wales (ICAEW).
In April 2013, the average small business was owed £31,000 in overdue payments from private sector clients, according to figures released by Bacs, the payments body. Across the economy, the total amount was £30.2 billion. It's a serious problem for SMEs whose profit margins are slimmer and for some small businesses, it may be time for a fresh look at their client base.
“One thing that stands out is that central and local government pay promptly. Central government has a commitment to pay in ten days, while local authorities commit to 30 days. For businesses where payments have become an issue, that certainty is very attractive,” says Lewis.
There is also the potential to build long-lasting relationships. “In spite of the cutbacks, public sector bodies and government departments are not going anywhere, so if you can establish a relationship, it could be one that will last a long time,” he says.
Andy White, who set up Electro Supplies with his brother Alex three years ago, has found that both of those principles hold good. Electro Supplies sells audio, theatrical and other electrical goods online. Around one-third of its orders go to schools, colleges and universities.
The fact that public sector bodies are pressed for cash can work in the favour of small businesses, says White. IT managers and other buyers are looking to spend more conservatively, which means they will look at smaller suppliers. That said, they are not necessarily inclined to continually chase the cheapest deal, providing they can leverage good service.
“The type of buyers we deal with are looking for a good price, but they also want to save on contractor costs by doing as much installation themselves as they can. The type of equipment we sell does require some level of advice and we benefit from having technical expertise in-house. Our buyers are easy to deal with, as long as you are able to support them,” he says.
White sees the schools marketplace as sustainable for his business and has found that other enquiries come his way because the sector has good word-of-mouth. Buyers tend to communicate with each other via Twitter and other forms of social media. That’s a feature of business life that Electro Supplies, as a new business, has grown up with and one that also protects the sector against poor service – possibly a challenge for less support-oriented businesses than Electro Supplies. “There’s no hiding place once someone has posted something online. School customers desire a reliable and accurate level of service and will move away from suppliers who don’t deliver this,” says White.
The education sector is reliable on the payment front, White says, but communication channels are not always efficient. Some buyers use charge cards, but others sales may need following up by credit controllers. And larger contracts can be elusive. Smaller businesses are more likely to be able to leverage these via partnerships with bigger players, he says.
Access to information
Seeking out public sector contracts is now easier than ever. Contracts with a value over £10,000 can be viewed at www.gov.uk/contracts-finder, and the site has links to other tender websites, including ones that list contracts in the Eurozone.
What’s more, local and central government bodies are obliged to seek out the best value suppliers they can, which may not necessarily mean accepting the cheapest bid – good news for businesses that add value through advice or high quality service.
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