- Cash flow: Cash flow is the lifeblood of a small government contractor or subcontractor. Managing cash for a small government contractor requires knowledge of government contract types and specific clauses related to contract payment. Negotiating the most favorable terms may mean the difference between long term success or failure of the contract and possibly even the firm.
- Pricing: Pricing in the proposal stage of a contract is crucial. Knowing how to leverage government cost rules when budgeting and pricing new proposals will directly affect cash flow after the award of the contract. With all the FAR regulations and other flow-downs on most government contracts it is critical that the small business has an expert CFO that can anticipate and construct pricing models that will be in the best interests of the firm going forward.
- Compliance: Depending on your mix and dollar amounts of the contracts, your financial and business systems may be heavily scrutinized by the government. Most small businesses simply don't have the expertise to survive the scrutiny if it focuses on your firm. An experienced outsourced CFO can provide that expertise and stability.
- Profitability: Success as a government contractor means monitoring profits and threats to performance on a job-by-job basis. Understanding the special contractual obligations imposed by government work is key to assuring this success. Understanding all of the government's complex matrix of requirements and applying them strategically can also lead to the maximization of a limited "fee" under government contracting guidelines.
- Company Vision: An outsourced CFO provides a "second set of independent eyes" on your business that assures the best possible long term strategy. This helps control costs because you pay for only the CFO duties that you need and don't need to pay 6 figures to receive the benefit of this position. A part-time CFO makes you look "bigger" and helps assure the government of your ability to survive and grow in the market. Also, by hiring a consultant you may have the benefit of more than one CFO at the outsourced agency that can "poll" their ideas and strategies resulting in a better final strategy for the small business. To top it all off, this is an allowable expense for government contractors.
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As most of us are aware of now, Defense Secretary Gates make sweeping proposals to cut overhead spending in the Defense Department over the next 5 years (reference our blog from Sept. 10, 2010). The goal is to find $100 billion over the next 5 years by improving efficiencies and cutting unnecessary overhead. So what does this mean to the average government contractor? I listened to Rich Wilkinson, government contracts Vice President at Deltek, Inc, last week as he accessed this question. Secretary Gates' proposal includes trimming 10% of the funding for service support contractors each year for the next three years. Rich's point is that this could mean serious re-adjustment for small to medium sized businesses that are supplying what is known as Professional, Administrative & Management Support Services (or PAMS). It could result in the elimination of close to $4.5 B in PAMS spending. Obviously other areas will be cut such as the closing of the JFCOM in Virginia. If you are a small business supporting this area of the Department of Defense you need evaluate your business model immediately in order to survive over the next 3 years. Now, more than ever, is the time for strategic planning for the future. Rich has some recommendations in his paper and we can help you here at Tech Biz evaluate your business model as well. I think everybody that has enjoyed supplying the Department of Defense with products and/or services over the last 10 years needs to be proactive right now in order to survive in the future.
Tech BizSolutions, Inc. is looking to expand our nationally recognized staff. We are looking for special individuals. The right person is someone that has accounting experience/knowledge and also knowledge of government accounting requirements. So the right individual will know about all the Federal Acquisition Regulations, know about Generally Accepted Accounting Principles (GAAP) and have experience in servicing contracts with the Federal Government. Familiarity with small business accounting programs such as QuickBooks, PeachTree, Deltek GCS and others is definately a plus.