GovCon Industry vs a Franchise

In Federal Government contracting, minimal upfront financial commitment is required until after you are awarded the contract. This means you don’t have to hire your contractor employees or make any infrastructure purchases until after you win the contract and are guaranteed revenue to pay for these things! In fact, Government Contracting Academy founder, Randy Wimmer, funded the launch of his first GovCon company by simply cutting back on his Starbuck’s habit!  This is a major advantage over most franchising opportunities.  Let’s take a deeper look into this by using a hamburger restaurant franchise as an example.  

To open a restaurant, you will first need to either buy or lease building space. Then you must completely refinish and outfit the space as a restaurant. This includes industrial cooking, grilling, and cleaning appliances, as well as tables, chairs and other furnishings. Of course, décor and branding are also important and very expensive.

Now it’s time to buy all the necessary supplies and services, such as insurance, security, credit card processing, accounting, etc. Finally, we get to the burgers and other menu items that must be purchased. But you’re still not done spending money! Before you open, you must also hire and train a complete staff of cooks, servers, managers, bus boys, etc. Think of the upfront costs that you must invest before you sell your first burger for three bucks!

However, this scenario is even worse than I’ve illustrated. Most first-time entrepreneurs jump on the franchise bandwagon, believing that buying a license for a known brand and a proven “playbook” are all they need for guaranteed riches. So, let’s assume that New Guys’ Burgers is a franchise. According to Entrepreneur Magazine’s best franchises list, the average initial investment for the top 10 restaurant franchises is about $1.5 Million.

Let the sticker shock sink in before you consider this fact. According to a report on food franchising by Franchise Business Review, OVER HALF of food franchises earn less than $50,000/year in profit. Only a measly seven percent make more than $250,000/year.  The average annual profit hovers a little over $80,000.

Now that you know the numbers, let’s be honest. Will an average annual profit of a little over $80,000 make you financially independent? How many DECADES would you need to successfully operate your franchise to achieve your financial “magic number?” Is this expected return even worth writing a check that large and working as a fast-food manager flipping burgers?

Now let’s consider the upfront costs of starting a Federal Government contracting company. Depending upon your specific service or product that you intend to sell to the Federal Government, there is some variance regarding the costs associated with launching a GovCon company. Let’s use Randy’s first GovCon company that provided professional services as an example.

Randy paid $100 in licensing fees to register his Limited Liability Company. He bought a $50 website template and populated it with his corporate information and paid $15/month in webhosting services. Webhosting came with a free email account. He bought $50 worth of business cards and upgraded his personal printer to something with a little higher print quality. He paid around $250 for it.

That was his entire upfront cost to launch a legal GovCon company. After these initial investments, the cost to bid on his first prime contract that was worth $15 Million was $20 in binders and paper. His real cost to submit this proposal was many, many late nights of work.