Your CFO solutions provides professional financial services—on a part time or interim basis—that help SBA government contractors win more contracts by:
- Understanding the implications of bid rates, rate calculations and Incurred cost submissions to establishing competitive pricing models
- Managing cash flow
- Remaining compliant
- Reducing risk
Government Spending Caps through to 2021
Government contractors can attest to the fact that competition for government contracts is becoming increasingly more competitive due to cuts in federal spending.
Part of the reason is that the growth in government contract spending has been capped at less than GDP growth—According to the Congressional Research Service, under the budget caps established by the 2011 Budget Control Act, federal discretionary spending cannot increase more than a compound annual growth rate of 1.7 percent from fiscal 2014 through fiscal 2021.
Without the caps, spending would have started out $150 billion higher in fiscal 2014 and risen faster, at a 2.1 percent compound annual growth rate through fiscal 2021. Forecasts indicate that any attempts to ease the spending caps will be modest at best. As such the trend of belt-tightening in government contract procurement will continue through the current fiscal year and into the next decade. Therefore, in light of budget constraints, affordability will remain a contracting priority in 2017 and beyond.
The result of this tight budget environment is that contracts, which previously would have only attracted a handful of companies, have become highly competitive with contractors who making aggressive offers, with slimmer margins prevailing.
In the ultra-competitive government contractor marketplace, managing costs and maintaining transparency are critical to not only remain competitive in the short term but is also vital to long-term sustainability.
Professional Financial Oversight Helps win Government Contracts
One way in which government contractors are increasing their chances of success is to seek professional financial input from and outsourced CFO. This option has proven particularly useful for many smaller SBA government contractors who do not need, or cannot afford, to hire a full-time CFO. Outsourcing a CFO can free up more time and energy for executives and managers to focus their efforts on the other essential duties that will deliver the most advantages to the company.
Adopting best practices for government contractor financial management that hiring a CFO to provide strategic financial leadership, which in turn can offer competitive benefits in a difficult marketplace.
For government contractors, a CFO can particularly offer value in three vital areas: compliance, cash flow management and contract analysis, as well as ensuring compliance with the financial reporting requirements for government contractors.
Cash Flow Management and Forecasting
Government contractors can face significant cash flow challenges, especially during the ramp up times for new contracts. As attractive a government contract may seem, the extended payment terms for contractors means they need to fund all the costs associated with running the business—overhead, employment, facilities and equipment—costs which all have to be covered before any income is received.
Effective cash flow management and forecasting for government contractors provide the foundation for success since the margin for error are slim on government contracts. A CFO can construct cash flow projections and manage current cash flow accordingly so as to prepare for situations in the event cash flows will be temporarily reduced.
In a cost-based pricing industry, government contractors who rely on a CFO for guidance in planning its future cash requirements to avoid a crisis of liquidity and to enable the contractor to continue moving forward can offset a great deal of risk, particularly in the event a contractor takes on a contract which results in higher than expected cash expenditures.
Contract Analysis, Cost Models and Pricing
Firms with long-term experience in the government contracting space understand that contract analysis is vital to remaining economically viable. When engaging in competitive bidding, particularly in a highly competitive bidding environment, contractors must understand when placing a bid if a contract presents an acceptable amount of risk while providing some assurances of an acceptable return.
A detailed understanding of rate calculations and incurred cost submissions have a direct impact on the profitability of a government contract. To be effective in obtaining contracts, a rate analyses should be done by forecasting the financial statements of the contractor for the life of the potential contract (generally five years) and trying to get comfortable with the midpoint rate.
It is essential to look at the Incurred Cost Submission (ICS) annually as a way to do two things:
- maintain compliance with FAR
- just as importantly, look at the trends and costs being submitted on the ICS incurred and using this information to optimize your financial forecasts used for the rate analyses
By constructing costing model that anticipates future revenues and allocates overhead expenses appropriately, can allow the contractor to offer competitive bids while managing risk.
A CFO can act as a gatekeeper to prevent mispricing or taking on unnecessary in the form of bad jobs from derailing your firm. In a time when margins for government contracts are as tight as ever, this type of protection can pay long-term dividends.
Corporate Strategic Planning with Your CFO Solutions will give your business a clear understanding of what it takes to maintain the specific practices which will continually optimize your company’s overall fiscal health. Your CFO Solutions will implement the accounting technology and operational processes your company needs to maintain compliance with FAR and other contractual and compliance requirements.
Each government contractor must be on top of the books to accurately fill out the Incurred Cost Submission (ICS) checklist the form that all government contractors need to submit annually to the government for them to audit direct and indirect costs and ensure contractual requirements compliance with FAR. We can help your company to understand every one of the federal government’s complicated requirements and strategically using them for the maximization of a limited ‘fee’ from government contracting guidelines.
Contact Your CFO Solutions for more information on how an outsourced CFO can benefit your company.