Dangerously High RPM in GovCon

Ever think that as a small business

.......that you are financing the Federal Government?

The Government Contracting business is unique to any other businesses out there.

If you look at a franchise business, like a pizza shop or dry cleaners or whatever, the capital needs are financed by inventory and capital assets.  

The capital needs in GovCon can increase really rapidly.

And in the federal professional services business - there's no collateral, no fixed assets or real estate, low margins, and fierce competition.

So now, really no capital! Not quite enough cash flow with all the growth.

It's your company and you're the one investing it in. Your retirement plan and your largest asset. You've put it all on the line and you're committed to it. No question!

Overnight - you win a contract.

They want it operational in 30 to 60 days.

This is a big win and you're ready to execute!

Your “ramp up” included getting the recruiters back on the phone and HR onboarding as fast as possible. 

That just takes a little startup cash... not too bad.

But the big hit is on financing payroll - it’s the #PayrollGap.

Here’s how the contracts are structured.

You start work on January 1. You have payroll going out on January 25th.

You’re bringing on 20 people in cybersecurity with $100K average salary - so the first month of payroll is $167K.

You bill $250K on February 10th.

Then you wait.

By the time you get paid for that first $250K, it’s April 10th.

Your initial #PayrollGap is technically $83K, which is $250K billed minus $167K.

It’s actually more than that, because you’re carrying it for a couple of months.

Ever think that as a small business you're financing the federal government?

If you’ve got that kind of cash saved up, it’s not a big stretch.

Until you win contract #2!!

If you don’t have that kind of cash saved up - what are your options?

In federal contracting - the #PayrollGap is called Unbilled Receivables, or Unearned Revenue.

It's the riskiest stuff! No one wants to touch it.

Your banker knows you. Your kids are on the same soccer team and you talk all the time.

It's that second contract.

He says he can't go back to his boss now.

They won't take your line increase to the credit committee.

It won't be approved.

They've got underwriters, regulators, bank rules and shareholders.

There's nothing he can do.

Or he says he's working on it.

Asks you to send updated financials.

Meanwhile, you're sweating payroll and trying not to talk about it at home.

Or at work.

You've gotten through worse before.

What if you didn't have to learn all these lessons on your own?

I would never let that happen to you.

If you're a veteran business owner in federal contracting with contracts in professional services and IT, looking to grow even faster, let's talk.

Your success means you hire more veterans, and when #VeteransHireVeterans, our communities are stronger and our world is more secure.

Message me to set up a call.