Should I outsource my government contract accounting?
This question may come up many times in a small business. It may start out even more basic as "Do I need an Accountant?". As you can see from the referenced article, there are many sound reasons to enlist the help of an outside accountant to help your small business. All of these reasons are valid for the government contractor and then some. There are a myriad of rules and regulations put on the business that chooses to contract with the government. Some people even refer to accounting for government contracts as "Job Cost Accounting on Steriods". There is definately a "price" associated with government contracting. I know that many small companies decide to try to do the accounting and contract compliance themselves, in order to save money. After all, all the government requirements are "public domain" documents and readily available. This is true, however due to the huge volume of regulations, the complexity and intertwined references of the regulations, it can easily consume excessive time for the uninitiated. Heck, it can even drain a lot of time for the experienced regulation navigator. So to me, the question is not so much about saving a dollar up front but how much money will you spend overall trying to stay compliant. There are two ways to calculate this "cost of doing business". The obvious cost is that of the money spent to do the accounting. The not-so-obvious cost is the opportunity cost related to the work the individual doing the accounting. In other words, what is that person not doing that could help impact the company bottom line while they research regulations, do the accounting, re-do the accounting due to initial errors, reconcile the accounts due to differences that were initially not obvious and other seemingly mundane tasks. I have met many scientists that were frustrated doing accounting because it took more of their time than they thought they could afford (and took them away from what truely excited them). The other cost is that of delayed payments due to improper records, government audits and the possibility of cancellations due to non-conformances. I've seen all of these happen to companies that lease suspected it.
Paying someone that has the knowledge, the experience and the ability to do the mundane (heck - even enjoy doing the mundane) will pay dividends down the road for almost all small government contractors. Many times this does not become obvious until the DCAA decides to come in and audit the accounting system. I have seen companies that failed the DCAA audit and were on the verge of loosing a contract before we were able to come in and straighten out the accounting. This is a costly fix, it is much easier and cheaper to start up front with expert help to keep you compliant.