Whether you think you can or you can’t–you’re right. ~Henry Ford
You’ve heard us say many times: the #1 need of all businesses, of all sizes, in all industries, is access to cash to help with operating expenses and growth–it is the tie that binds you. Another commonality shared by most business leaders is their desire to do it all, even at their own expense, literally and figuratively. And what you don’t know will be to your detriment if you don’t seek out the advice and help of those who understand your struggles!
Team Parabilis spends an enormous amount of time highlighting the many supporting services dedicated to assisting small GovCons with being successful in the federal marketplace. The reason being, you as the business owner cannot do it all and still run a successful business. You have to build a team of internal and external experts to aid in the overall growth and productivity of your work.
The cost of doing business needs to include outsourcing your support, most immediately necessary is both accounting and legal services. Better to ensure you are doing things accurately and utilizing compliance measures from the start than pay for it all to be fixed once there is a problem…or an audit. Also necessary from the onset is an understanding that you will need access to cash, and not all options are the same or available to you at certain points in your journey.
Many times when I consult with small business leaders I hear the following with regard to lending:
- I didn’t even know an option like yours at Parabilis existed.
- Our contract doesn’t allow us to use factoring as our lending resource.
Thankfully, both of these reactions to an important and unfulfilled need can be overcome and lead to a positive outcome, however, without the proper information, you could be left floundering when there is actually a viable solution available to your GovCon right now.
In terms of reaction #1: If you didn’t know an option outside of traditional lending from a bank exists, now is the time to ask your banker what they will do if there comes a time when their line of credit option is not available to you when you need it and in the amount necessary to fit your needs. Team Parabilis partners with many GovCon-knowledgeable bankers who share their clients’ needs for this purpose with us so we can work together to provide the amount needed, just in time. There are a lot of variables that can stifle a traditional lender and with the atypical ebb and flow of federal contracting, it is very important that no matter how successful you are that you are aware of the other options available to you.
With regard to reaction #2: Prior to 2013 and the emergence of Parabilis’ unique offering to GovCons, outside of traditional banking lines of credit, invoice factoring was the next level option. Since that is not the case any longer, the cumbersome and sometimes convoluted processes with invoice factoring has even placed it as less than viable to government contractors and in some cases is called out for these inefficiencies in many RFP requirements where utilizing factoring as your financing option is not allowed.
Seeing this from an inside perspective, invoice factoring’s most fatal flaw in GovCon is that it isn’t a remedy for ramp-up scaling and initial onset of expenses. If you haven’t yet received an approved invoice you have nothing to sell to an invoice factoring company, in which case, you have no asset to borrow from in order to pay for operating expenses, namely payroll processes that occur before your first invoice is produced. Additionally, the initial discount fee and countless fees after the fact have made invoice factoring extremely unaffordable for small and growing businesses, especially when dealing with rising costs to operate and inflation and the effect of those on your profit margins.
Additionally, the typical “Assignment of Claims” clause in an invoice factoring contract will allow the factoring company to become the payee on your contracts thus enabling them the right to contact your contracting officers on behalf of the work you have earned, without notifying you. This is probably the biggest reason agencies have been advising against using this option to avoid too many intrusions in the process from outside vendors.
There is no doubt that the federal marketplace provides evergreen opportunities and will require skills and knowledge of how to navigate it to avoid common struggles as you rise through the ranks. The goal is to make more than you spend and grow to achieve all the success you desire. Be sure to ask questions, question the price of the services you outsource, and never let what you don’t know hold you back. There are leaders ahead of you who understand your journey and can share their experience so you can learn from their failures and victories! Knowledge is power!