Financial Strategies for Government Contract Start-Ups: Setting Up for Success

Government contracts offer lucrative opportunities for start-ups to grow their business and secure stable revenue streams. However, entering the government contract sector requires careful financial planning and strategic decision-making. 

In this blog post, we will delve into key financial strategies that government contract start-ups need to consider to establish a solid foundation for success. We will explore topics such as budgeting, forecasting, procurement, and operational costs, enabling start-ups to navigate the complexities of government contracts and maximize their chances of thriving in this competitive industry.

Key Financial Strategies for GovCon Start-Ups

Understanding the Government Contract Landscape 

Before diving into financial strategies, it is crucial for start-ups to familiarize themselves with the government contract landscape. This includes understanding the various contract types, compliance requirements, and the unique characteristics of working with government agencies.

Developing a Comprehensive Budget 

Creating a detailed budget is essential to effectively manage the financial aspects of a GovCon start-up. Consider the following elements when developing a budget: 

• Direct and Indirect Costs: Identify the direct costs associated with the contract, such as labor, materials, and subcontractors. Additionally, allocate funds for indirect costs like overhead, facilities, and administrative expenses. 
• Cost Estimation: Develop accurate cost estimates by considering historical data, market research, and consultation with subject matter experts. 
• Cash Flow Management: Plan for the inflow and outflow of cash, considering the typical delays in government payments. Maintain a sufficient cash reserve to sustain operations during any payment gaps.

Effective Financial Forecasting 

Financial forecasting is crucial for GovCon start-ups to anticipate future revenue, expenses, and cash flow. It enables informed decision-making and aids in assessing the financial viability of pursuing government contracts. Some key aspects of financial forecasting include: 

• Revenue Projections: Analyze historical contract data, market trends, and opportunities for future contracts to forecast revenue streams accurately.
• Expense Projections: Consider various costs, including direct and indirect expenses, to estimate future expenditures. 
• Sensitivity Analysis: Conduct sensitivity analysis to assess the impact of variables such as changes in contract scope, delays, or cost overruns on financial projections.

Procurement Strategies 

Effective procurement strategies can enhance a GovCon start-up’s chances of winning government contracts and optimizing profitability. Consider the following: 

• Competitive Pricing: Conduct thorough market research to understand pricing benchmarks and develop competitive yet profitable pricing strategies.
• Teaming and Subcontracting: Identify potential teaming partners or subcontractors to strengthen capabilities and increase chances of winning contracts.
• Contract Compliance: Ensure compliance with government procurement regulations and demonstrate a strong understanding of contract requirements.

Managing Operational Costs 

Start-ups must manage operational costs efficiently to remain competitive in the GovCon sector. Some strategies to consider include: 

• Lean Operations: Implement lean practices to reduce waste, streamline processes, and optimize resource utilization.
• Technology Investments: Leverage technology to automate processes, improve productivity, and reduce manual labor costs.
• Scalability: Plan for scalability by anticipating future growth and ensuring that operational costs can be effectively managed as the business expands.

Financial strategies play a critical role in setting up GovCon start-ups for success. By developing a comprehensive budget, conducting effective financial forecasting, implementing strategic procurement strategies, and managing operational costs, start-ups can position themselves for growth and profitability. It is essential to stay informed about industry regulations and market trends while continuously adapting financial strategies to capitalize on emerging opportunities in the government contract sector. With diligent planning and execution, GovCon start-ups can thrive in this dynamic and rewarding marketplace.

Are you considering becoming a Government Contractor? Virtual CFO provides GovCon-centric strategic accounting for small businesses providing services in technology, architecture, engineering, aerospace, and project management industries. 

We know your pain points – let us help you relieve them – schedule a consult.

The Ins and Outs of Government Contracting

What is Government Contracting?
Government contracting refers to the process through which the government procures goods, services, or projects from private sector businesses. It allows the government to obtain the necessary resources to fulfill its functions and obligations.

Government contracts can be highly lucrative for businesses, providing a stable source of income and the opportunity to work on significant projects. However, engaging in government contracts requires an understanding of the ins and outs of government contracting, including the complex procedures, regulations, and requirements involved. 

Key Aspects of Government ContractingTypes of Government Contracts

1. 1. • Fixed-Price Contracts: The government pays a set price for a specified product or service.
      • Cost-Reimbursement Contracts: The contractor is reimbursed for allowable costs incurred, plus a fee that represents profit.
      • Time and Materials Contracts: The government pays for the contractor’s labor and materials at predetermined hourly rates.
      • Indefinite Delivery/Indefinite Quantity Contracts: These contracts are used when specific quantities or delivery schedules are uncertain.

Contracting Methods

1. 1. • Open Competition: Multiple businesses can compete for government contracts through a formal bidding process.
      • Simplified Acquisition: For contracts below a certain threshold, the government can use simplified procedures to award contracts without a lengthy competitive process.
      • Sole Source: In specific circumstances, the government may award contracts directly to a single company if it’s determined to be the only viable source or have a special designation like Service Disabled Veteran Owned or 8(a) program.

Contracting Vehicles

1. 1. • General Services Administration (GSA) Schedules: These pre-negotiated contracts provide a streamlined process for federal agencies to purchase a wide range of goods and services.
      • Multiple Award Contracts (MACs): These contracts are awarded to multiple vendors, who then compete for individual task orders.

Registration and Compliance 

1. 1. • System for Award Management (SAM): Businesses must register in SAM to be eligible for government contracts.
      • Federal Acquisition Regulation (FAR): The FAR is a set of rules and guidelines that govern the acquisition process for most federal agencies.
      • Federal Procurement Data System (FPDS): ​​The real-time, relational database that serves the government acquisition community as the authoritative source of contract information.
      • Contractor Performance Assessment Reporting System (CPARS): A web-based system that allows government agencies to report and rate contractor performance.
      • Small Business Programs: Various programs exist to promote small business participation in government contracting, such as the Small Business Administration’s 8(a) Business Development Program, HUBZone Program, and Women-Owned Small Business Program.
      • Compliance and Certifications: Depending on the industry, specific certifications and compliance requirements may be necessary, such as ITAR (International Traffic in Arms Regulations) for defense-related contracts.

Proposal and Contract Management

1. 1. • Request for Proposal (RFP): The government issues an RFP outlining its requirements, evaluation criteria, and contract terms. Contractors respond with proposals.
      • Proposal Development: Crafting a compelling and compliant proposal requires understanding the government’s needs, differentiating your business, and demonstrating capabilities and experience.
      • Contract Performance: Successful contract execution involves adhering to contract terms, providing regular reports, managing subcontractors (if applicable), and meeting deliverables.

Ethics and Integrity

1. 1. • Government contracts are subject to strict ethics regulations, including rules against bribery, conflict of interest, and favoritism.
      • Compliance with ethical standards, including the Federal Acquisition Regulation (FAR) and agency-specific regulations, is essential.

Post-Award Actions 

1. • Contract Administration: This involves managing day-to-day operations, ensuring compliance, tracking progress, and addressing any contract modifications or issues.
   • Performance Evaluation: The government evaluates the contractor’s performance against predetermined criteria.
   • Contract Modifications: Changes to the contract may occur during its execution, such as scope changes, extensions, or adjustments to the terms and conditions.

Navigating the world of government contracting requires careful planning, knowledge of the regulations, and the ability to effectively compete in a complex and highly regulated environment. It is advisable for businesses interested in government contracts to thoroughly research the process, seek guidance from experts, and stay updated on the latest regulations and opportunities in order to maximize their chances of success.

Are you a Government Contractor? Virtual CFO provides GovCon-centric strategic accounting for small businesses providing services in technology, architecture, engineering, aerospace, and project management industries. 

We know your pain points – let us help you relieve them – schedule a consult.

What You Need to Know About DCAA and FAR Compliance

DCAA stands for Defense Contract Audit Agency, while FAR stands for Federal Acquisition Regulation. Both DCAA and FAR are critical components of government contracting, and compliance with them is necessary for companies that want to do business with the U.S. government.

Here are some important things you need to know about DCAA and FAR compliance:

What is DCAA Compliance?
The DCAA is responsible for auditing and evaluating government contracts and ensuring that contractors are following regulations and guidelines. To be DCAA compliant, contractors must adhere to certain accounting principles, maintain accurate and complete records, and follow proper billing procedures.

FAR Compliance
The FAR is a set of rules and guidelines that govern the acquisition process for federal agencies. The regulations cover a wide range of topics, including procurement procedures, contract administration, and ethics. Contractors must comply with the FAR to be eligible for government contracts.

DCAA Audits
The DCAA conducts audits to ensure that contractors are in compliance with government regulations. Audits can be performed on a variety of areas, including billing procedures, cost accounting, and timekeeping. Contractors should maintain accurate records and be prepared to provide documentation to support their compliance.

Compliance Requirements
Contractors must be aware of the compliance requirements for both DCAA and FAR. This includes understanding the rules and regulation, maintaining accurate records, and implementing appropriate internal controls. Failure to comply with these requirements can result in penalties, loss of contracts, and damage to a company’s reputation.

Importance of Compliance
Compliance with DCAA and FAR regulations is critical for companies that want to do business with the government. It not only ensures that contractors are following proper procedures and guidelines, but it also helps to promote transparency and accountability in government contracting.

In summary, DCAA and FAR compliance are important for companies that want to do business with the government. Contractors must be aware of the rules and regulations, maintain accurate records, and implement appropriate internal controls to ensure compliance. Failure to comply with these requirements can result in penalties, loss of contracts, and damage to a company’s reputation.

Are you a Government Contractor? Virtual CFO provides GovCon-centric strategic accounting for small businesses providing services in technology, architecture, engineering, aerospace, and project management industries. We know your pain points – let us help you relieve them – schedule a consult.

Who Needs an Incurred Cost Submission?

It is a few weeks into the new year, and you finally feel like you can breathe again. Your business’ financial statements are done, and your taxes are in progress. For the foreseeable future, it seems as though everything will be smooth sailing. That is until you get a reminder about an Incurred Cost Submission (ICS). Before the panic can set in, you remember that not every government contractor needs to submit an ICS. But how do you know whether you need to submit an Incurred Cost Submission?

Who Needs to submit an Incurred Cost Submission?

Government contractors with time and materials (T&M) or cost reimbursement contracts need to submit an incurred cost submission. Contracts that require the submission of an ICS will include the Federal Acquisition Regulation (FAR) clause 52.216-7. This clause requires the submission of an ICS six months after the fiscal year end. FAR 16.307 requires the inclusion of this clause in T&M and cost reimbursement contracts. If a contractor needs to submit an ICS late, an extension request to their contracting officer (CO) needs to occur. Also, an ICS must meet DCAA’s requirements, and their adequacy review.

Why does an Incurred Cost Submission need to be submitted?

Provisional billing rates (PBR) provide contractors with indirect cost rates to bill the government on T&M and cost reimbursement contracts. The PBRs are approximate rates of a contractor’s final rates. Since, PBRs are only estimates, they often differ from the final rate. The differing rates is why contractors must submit an incurred cost submission. An ICS establishes the final actual indirect cost rates. With the final rates, any under or over payments to the government becomes clear. Ultimately, the ICS provides a ‘true up’ of actual indirect costs to those billed using the PBR rates.

DCAA requires contractors with T&M and cost reimbursement contracts to submit an incurred cost submission. If you are unsure whether you need to submit an ICS, our team is here to help!

Originally written by Jamie M. Shryock, CPA

Updated and additional content provided by Elizabeth Partlow