Running a government contracting company, especially as a small business, presents a unique set of financial challenges. These can range from good problems to have like winning a contract that 5X’s your revenue over night, to less desirable problems like receiving a stop work order that shuts down revenue for five months. Whatever the challenge, the Government Contractor’s Council is here to assist contractors with navigating through the various financial challenges that arise. Below are the most common financial problems a contractor will need to solve along their growth journey.
Working Capital – All small and medium sized government contractors face one common problem…a shortage of working capital to pay payroll and operating expenses. Contractors most often face working capital shortages due to a mismatch between when their expenses need to be paid and when payment is received from their contracts. This problem is accentuated when headcount is added to contracts or new contracts begin, often resulting in payment delays of 60 to 90 days. Developing a relationship with a partner that can providing working capital financing is critical to solving this problem.
Debt Refinancing – Many government contractors when first starting out take on debt from many different sources, some of which are extremely expensive. Most government contractors do not have large enough profit margins to continue paying for high cost debt, creating an untenable situation. There are many options for consolidating debt and refinancing at a lower cost that contractors should consider to ensure their growth plan remains intact.
Acquisition Financing – One option for growing a government contracting business is to buy another company to not only increase revenue, but also acquire additional contract vehicles, strategic relationships and high-value employees. However, there are many aspects to consider before acquiring another company and myriad ways to finance the transaction. Finding the right expertise to help guide you through this process is crucial.
Contract Mobilization – Many contracts require contractors to hire employees, secure insurance and purchase equipment before the contract begins. Depending on the contract, it can take between 45 and 90 days before the first payment is received. In addition to working capital financing, contractors should consider securing contract mobilization funding to bridge any additional cash flow needs that arise from initiating a new contract.