Cash is King

The ability to maintain your operations i.e. financing payroll, vendors and any general and administrative expenses such as your office rent and related costs while pursuing new business is a balancing act especially for a new business.  Depending on the economic current your ability to access commercial lines of credit for your business will fluctuate.  That will also impact your ability to access the equity in your home.  Thus it is important to seek to obtain the highest line of credit that you can from your bank as well as seek to operate as cost effectively as you can.

There seems to be a major push to obtain an office and often it is more than what you need initially.  I would highly recommend considering using an executive office arrangement where you lease a single office and have access to a centralized pool of services such as a conference room, receptionist and copier services.  This is more flexible and acceptable for meeting with other teaming partners and with interviewing employees.  The federal government will not be visiting your offices unless you provide a special laboratory based service where they must inspect your facility so you do not need to try to impress the customer with lavish furnishings that your initial operation does not merit.

You need to seek to have a line of credit that can support at least three months of your payroll operations for your billable employees.  As the owner you can withhold your payments if you are in a tight cash flow period but you cannot do that with your employees.  If your employees are not paid on a timely basis that will reflect negatively in your past performance and reputation.  When our company went through Hurricane Katrina on August 29, 2005, our employees were all paid on September 1, 2005 and never missed a payment likewise for our vendors especially other small businesses.  This was viewed during one of our contract awards as a financial strength of reliability.

One of my friends experience a bank error in the transfer of funds to his payroll account from his operating account causing all of the payroll checks to bounce on the first payday after the contract started.  My friend went to the bank and had the VP of the bank come to the customer and employees to apologize that same day and paid everyone in cash.  That led to the reputation of my friends company as one of reliability and trust and he has grown exponentially because of that reputation.

It is essential that you manage your business like your home and spend within your budget that you should establish annually.  If you do not have the financial expertise hire an external company that provides accounting services to federal contractors to provide you monthly data on your operations so you know your actual rates versus your provisional rates (rates you proposed in your offer to the government and can bill your customer).  It is essential that you propose rates you can make a profit and also support if you receive a DCAA audit.

There are several financing options available to small businesses and some below $250 depending on your credit that can be an unsecured line of credit.  Beyond that amount they are generally collateralized by your government contract based accounts receivable.  Please avoid going to non-traditional financial institutions i.e. not regular banks as they offer many financing options based on your receivables but their business practices may not be as ethical, legal or in your best interests as a regular bank.

Finally, cash is king and remember that in your planning and use of the excess funds you have to invest in your business while also seeking to build cash reserves for the various emergencies that will occur.  For example one o f our customers went to a new financial payment system and went from a reliable 30 day electronic payment to four months of stalled bills and if we did not have adequate cash reserves and line of credit we would have not been able to maintain operations i.e. finance payroll or pay our vendors on at timely basis.

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