How much money do you actually need to start in federal government contracting? Some people will tell you that you need tens of thousands of dollars just to get started. Others will say you can do it for free. So, what’s the truth?

Today, I’m giving you the full breakdown of costs involved including business formation, registration, INSURANCE, FINANCING, AND ACCOUNTING and even proposal writing and setting up an office. Today, I’m not just throwing out numbers—Today, I’m giving you the actual steps, websites, and resources for each cost breakdown so you can go DIY if you want to save money, or you can invest in professional help if you want to speed things up.

Now, let's get started calculating how much it really costs to get started in government contracting. We will begin with the costs associated with your business formation and we will first look at it from the DIY approach.

1: BUSINESS FORMATION COSTS

If you want to go the DIY route to set up your new business, here’s how to start.

To register your business as an LLC or Corporation, visit your state’s Secretary of State or Dept of Revenue websites and file for either an LLC, Corporation or whichever tax formation best suits your business. To find your state’s business registration site, search "LLC Registration + [Your State]" or visit the SBA website and come over to the Business Guide > Launch Your Business section, and scroll down to look up your state website. 

The cost to do this ranges from 50$-$500 depending on the state. 

The next step is to obtain an EIN (Employer Identification Number). You can apply for one at the IRS website at irs.gov/ein. You can select to apply for an EIN, and then follow the simple steps to begin your online application. The good news about this is that the EIN is issued immediately online. And a quick reminder to complete your State registration first as you will need information from that to complete your EIN application. The cost to do this yourself is absolutely free.

Once your business is legally formed, you’ll want to open a business bank account. To do this, take your EIN and LLC formation documents to any major bank. I will avoid pointing you in any direction for a particular bank in this video. 

But I will share one thing to possibly consider- 

Pro Tip- if you have any existing relationships with banks for your personal accounts, you could compare the dollar limits and what they charge for lines of credit if that funding resource is something you think you would need to finance future contracts as you win them. 

With that being said, the cost to open a business bank account at many banks is absolutely free. However, some require a minimum deposit between $100 and $500.

Paid Approach – Faster, but Costs More

Now, if you don’t want to deal with all this paperwork and back-and-forth, you can hire a service to do your business formation.

Companies like LegalZoom can handle your entire business formation to incorporate with your state and receive your EIN. The cost to do this is $300-$600 plus state filing fees.

Let’s total up the costs to form your business.

For the DIY approach, you can complete your state registration for $50-$500 depending on your state, your EIN with the IRS is free, and you may need $100-$500 to deposit into a business bank account. If you want to have a company do it for you, the filing fees plus agency fees can be anywhere from $350 to $1,100 depending on what state you are incorporating. 

2: REQUIRED REGISTRATIONS

Next, once your business is legally formed, the next step is getting registered to do business with the government.

Here is the DIY approach.

You can first begin registering to do business with the federal government by applying for a Unique Entity ID (UEI). Some will remember, this replaces the old DUNS Number from Dun and Bradstreet and is now the new requirement to do business with the federal government. You can apply for a UEI by first creating an account at SAM.gov and then following the prompts to get started applying for your EUI. You should receive your UEI very quickly after submitting. The cost to do this is absolutely free.

The next thing you must do is register on SAM.gov. This is where the government verifies your business before you can bid on contracts. To start, go to SAM.gov and click "Get Started." Registration typically takes two to six weeks to process. A common mistake is entering your business name incorrectly. To avoid delays, make sure your business name exactly matches your LLC or Corporation documents.

To register for a CAGE code yourself, it’s best to review the “entity registration video” that is provided in your SAM.gov workspace as well as to download the entity registration checklist that SAM.gov provides you so that you are fully prepared with what to expect and what information you will need to have on hand before you get started. The cost to do this is absolutely free.

After registering on SAM.gov, you could apply for SBA Small Business Certifications if you qualify. Some of the most valuable certifications include the 8(a) Business Development Program for disadvantaged businesses, the Woman-Owned Small Business (WOSB) Certification, the Service-Disabled Veteran-Owned Small Business (SDVOSB) Certification and the HUBZone certification program. You can apply for all of these at certify.sba.gov. 

Pro Tip- Keep in mind that although registering for certifications fits in nicely at this stage, I personally recommend pursuing certifications after you learn how to bid contracts and maybe have won a few.

The cost to apply for set-aside certifications is absolutely free.

Paid Approach – Speed and Accuracy

If you don’t want to deal with the headache of registrations and certifications and you’re afraid of making mistakes, you can hire professionals to handle it for you.

Many consultants offer SAM.gov registration services for you, ensuring that your application is submitted correctly and without delays. Please keep in mind that no one can expedite the government's processing timeframe. The cost to do this is typically $1,000 to $2,500.

The same consultants also offer the option to register your business for certifications like 8(a), WOSB, HUBZone, and SDVOSB. Depending on the certification you’re after, the cost will vary. The cost to do this can range from $1,500 for the simpler certification and go up to over $7,000 for the more involved certifications.

Let’s total up the costs for registering your business and applying for government certifications:

To register and certify your business using the DIY approach will cost you no additional money. You can do everything for free. To expedite these services with a premium option, you can pay $1,000 - $2,500 for your EUI and CAGE code registration, and $1500-$7,000 to obtain a set-aside certification.

 3: INSURANCE, FINANCING, AND ACCOUNTING COSTS

So far, we’ve covered business formation and registrations. But before you start bidding on contracts, there are a few additional costs that many new government contractors overlook. These include business insurance, financing (or cost of money), and accounting. Let’s go over what these costs look like, whether you’re taking the DIY approach or opting for a premium setup."

DIY Approach

If you choose the DIY route for insurance, you’ll need to shop around for general liability insurance. In some instances, you may need other insurances as well. These are often required in federal contracts, but keep in mind, you won’t need to pay for these policies or put them into effect until you officially win a contract. Look to your solicitation to find the specific insurance requirements for the job you’re bidding.

The cost to do this is typically $500-$1,500 for an annual general liability policy with standard limits.

When it comes to financing your deals as you win them, there is a DIY approach to consider. If you are working with teaming partners as potential future subcontractors, you can let them know you operate on a paid-when-paid term. Meaning, the government typically pays net 30, and you will pay them within 2 weeks of being paid by the government. This is something you can try to negotiate into your agreement. Similarly, if you are selling supplies, you can ask suppliers if they offer terms on an invoice where they can provide an invoice with payment due in 30 days. This is a situational approach, and won’t work all the time, but it’s one you can try to structure your deals for if you are looking to avoid upfronting any money.

Finally, let’s talk about accounting. If you’re managing your books yourself, you’ll need accounting software like QuickBooks online. You may also need payroll and tax management. To do so, you’ll need to keep track of invoices, taxes, and profit margins, which means setting aside time each month for bookkeeping. If you want to file your business taxes yourself at the end of the year, you can use a DIY software like Turbo tax.  The cost for QuickBooks Online starts at $30 per month. The cost for payroll can be up to $200 per month to start. The cost to file your taxes yourself using TurboTax can range between $150 and $500 depending on the number and types of forms included in your return.

Paid Approach – Hands-Off and Professional

Now, if you want a fully managed approach, hiring a business insurance broker can simplify the process. Instead of comparing insurance rates yourself, a broker will assess your needs and find the best policy for your industry. Some brokers charge upfront, while others work on commission, meaning their cost is built into your premium. The cost to do this, if you want comprehensive coverage, including general liability, E&O, and workers' compensation, a bundled business insurance package can cost between $2,500 and $10,000 per year.

When it comes to financing, many government contracts operate on net-30, net-60, or even net-90 payment terms depending on the project, meaning you could have to wait one to three months before getting paid. If you’re funding your contract fulfillment yourself, that means you need cash reserves. To cover short-term expenses while waiting for government payments, you can apply for a small business line of credit at your bank. If you qualify for a business line of credit, you may be able to borrow $5,000 to $100,000. The cost to do this is paying an interest ranging from 8% to 25% APR, depending on your credit score.

For accounting, if you don’t want to manage the books yourself, you can hire a GovCon-specialized accountant or bookkeeper. They will also offer tax preparation services and dcaa-compliant accounting. The cost for monthly bookkeeping ranges from $200-$1,000. The cost for tax preparation services will range $1,000 - $5,000 per year.

Total Costs – DIY vs. Paid Approach

Let’s total up the costs for this section:

If you’re doing this yourself, you can expect to pay $500 to $1,500 per year for basic insurance, use lines of credit to cover funding gaps at 8-25% interest, and spend $30 to $100 per month on DIY accounting software. Lastly, use a low-cost tax preparation service like Turbo Tax to file your taxes for $150-$500.

If you want a fully managed approach, including premium insurance, contract financing, and professional accounting services, expect to spend between $6,700 and $31,000 per year for comprehensive coverage and expert support.

4: PROPOSAL & BIDDING COSTS

DIY Approach

Now that your business is registered and covered, it’s time to bid on contracts.

To find contracts, start with government databases like  SAM.gov, FPDS.gov, and USAspending.gov. These sites provide data on past and current contracts, so you can research opportunities in your industry. The cost to use these is absolutely free.

Once you find a contract to bid on, you’ll need to write a proposal. The Small Business Administration (SBA) offers proposal templates to guide you. However, writing a winning proposal takes skill and practice. If you’re writing your own proposals, expect to spend 8 to 20 hours per bid. The cost to do this is absolutely free.

To streamline your process, consider using tools like Google Docs and Grammarly for editing, and create a proposal template that you can reuse.

Pro Tip- Begin building your own proposal library using an AI software like CHATGPT to create custom proposal templates that will fit both your business and the approach you and your teaming partners will take when bidding and performing on contracts.

The cost to do this is absolutely free.

Paid Approach – A Competitive Edge

If you want to increase your chances of winning, investing in tools and experts can give you an advantage.

Advanced research tools in the form of paid govcon software can provide deeper insights into government spending trends, finding the right contracts for your business, and even helping you write your first government proposals. The cost to do this is typically between $100 and $500 per month.

Hiring a professional proposal writer can also be a game-changer. They can show you what right looks like, which seems to be one of the biggest struggles for new govcons – building your confidence for future bids. With that being said, they are a serious investment. The cost to do this is often between $1,000 and $5,000 per proposal, depending on the contract’s complexity.

Let’s total up the costs for this section:

You can use free software and free resources to begin proposal writing and bidding on government contracts using nothing other than your own manpower and free tools. If you want to invest in govcon software to give you an edge, expect to pay $100-$500 per month. If you decide to hire a proposal writer to submit 1 bid per month, you can expect to spend no less than $1,000 to $5,000 per proposal, or $12,000-$60,000 thousand per year, and considerably more as you increase the proposal size and quantity of proposals written.

 5: OFFICE SETUP

When it comes to setting up your office for government contracting, you usually have two options: a DIY home office setup or a premium professional setup. The costs can vary widely depending on how lean or professional you want to go.

If you’re going the DIY route, you can get started using what you already have at home. You likely already have some form of a computer and phone. You will also likely already have internet service. At this beginning stage, your office space can be where you can set up, for now—your home office, the kitchen table, or a spare bedroom. However, you might want a dedicated business phone line, where you can get services like Google Voice. You may also need a printer and some office supplies. Lastly, you’ll need business software, such as Microsoft 365, Google Workspace, or project management tools.

The cost to create your own home office using your personal devices is absolutely free. The cost for a printer and office supplies can range from $50-$200 per month and for software $10 to $50 per month.

Paid Premium-

On the other hand, if you want a fully equipped premium office setup, the costs are significantly higher. First, you may want to purchase a new business laptop. A dedicated business phone with a professional plan may best fit your needs. You also may need a high-speed business internet connection for virtual team meetings and overall stronger connectivity. You may also decide working from home is not an option, so you must rent office space, such as a coworking desk, executive suite, or private office. You could choose to outfit that office with furniture and equipment, including a desk, chair, monitors, and storage, will cost between $500 and $2,000. Finally, business software for CRM, project management, and advanced accounting tools may be required for the solicitations you are bidding on and the teaming partners you are working with.

The cost for a brand-new laptop can range from $800 to $2,500 for a high-performance model like a MacBook Pro, Dell XPS, or ThinkPad. The cost for a dedicated phone line will cost $50-$150 per month. The cost for high-speed internet can range from $100-$300 per month depending on your provider. The cost for renting a work space can range from $300 to $2,000. The cost to outfit your office could range from $500 to $2,000. The cost for advanced software can range from $50 to $200 per month.

Let’s total up the costs:

To use your own home and personal devices, with minimal office supplies, you can DIY your own office setup for $170 – $800 per year. If you need to rent a space, outfit it with furniture, get a dedicated phone line and internet, and get a new computer with enhanced software, it can typically cost you $7,300 – $36,300 per year.

As we’ve just laid out, you can see that there are pros and cons to taking both the DIY approach and the paid premium approaches to each of these expense areas in your business getting started in government contracting..

Disclaimer-

I know you’re excited to see everything tallied up, but before we calculate the Grand Total Costs, I must point out that this list of costs to get started in government contracting that I’ve covered today, is not exhaustive.

For example, I did not cover other financing options like invoice factoring which charges 1-5% per invoice. I also did not cover industry specific costs like the cost of payment bonds or bid bonds in construction.

I tried to make it as universal as I could so that anyone reading could walk away with a strong understanding of many of the significant costs associated with doing government contracts yourself VS hiring paid premium services.

I also tried to be prudent with my numbers by giving ranges and using verbiage like “typical” to try to give you - the reader, a realistic idea of the general costs to get started in government contracting.

With that being said, there is no way I could cover every possible cost to get started and there is also no way I could be 100% accurate with these costs, but I did do my best..for you.

Now, without further ado, and a drum roll please…

The cost to get started in government contracting doing it yourself, including business formation, registration, business expenses like accounting, financing, and insurance, proposal writing, and an office setup. The cost to do all this yourself will range from $1,330 to $5,000. 

This actually seems lower than I thought it would, but it also seems very realistic.

Now, a final drum roll. Here’s for the big number. The cost to have a consultancy do your business formation for you. To hire a govcon registration company to register you and also have them apply for your set aside certification. With this plan, you’re working with an insurance broker and accounting experts. You’re having a professional proposal writer respond to a solicitation every month. And you are renting a work space outfitted with furniture so that you have a place to put your new laptop and office supplies. The cost for all of this will range from $30,050 to $155,900.

You hear about businesses spending many tens of thousands of dollars to get their business started in government contracting, and this shows why this is possible.

So, now you know exactly what it costs to get started in government contracting. Whether you want to bootstrap your way in or invest in a fast-track approach, the choice is yours – there is no right or wrong here.

-Derek James 

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