In the complex world of government contracting, access to capital and financial advisory services are crucial for success. Recently, Parabilis and our partner Rehmann hosted a webinar featuring experts Hugh McClelland from Parabilis and Tom Shemanski from Rehmann to discuss these critical topics. Here are the key takeaways from their discussion.
The Importance of Financial Planning and Forecasting
For growing government contractors, accurate financial forecasting and cash flow projections are crucial. Tom highlighted that businesses demonstrating the ability to forecast and plan proactively are viewed more favorably by lenders. He stressed the importance of having rolling forecasts and financial models that constantly analyze “what-if” scenarios.
Hugh also noted that proper planning allows Parabilis to be proactive in structuring financing to best fit a client’s needs. He emphasized the importance of having a 30-60-90 day outlook on upcoming contracts and expenses.
Challenges in Obtaining Financing
Every business owner knows that obtaining funding for a project is no small task. Many face hurdles when seeking financing. Some of the hurdles highlighted by our experts include:
- Lack of operational and financial maturity
- Inability to meet bank requirements for track records of profitability
- Difficulty in producing accurate pro formas and forecasts
- Challenges in meeting restrictive bank covenants
We have highlighted some of these challenges previously in our blog. Being aware of these potential hurdles is the first step, then it’s necessary to take action and bring in the right partners to ensure they don’t have a permanent impact on your business’s growth.
The Role of Financial Advisory Services
Sometimes, ensuring you have the right funding for a contract is making sure to ask for help. That’s where Financial Advisory Services come in. Tom broke down two of the typical engagement models for financial advisory services:
- Project-based engagements for specific issues
- Fractional CFO services for ongoing support
These services can help businesses prepare the necessary documentation for lending requests, develop financial strategies, and implement better financial management practices.
Alternative Lending vs. Traditional Banking
Another important part of ensuring proper funding, is making sure you have the flexibility and cash flow when project costs grow. Hugh highlighted the benefits of alternative lending sources like Parabilis, which include:
- Greater flexibility in loan structures
- Ability to work through problems rather than immediately enforcing strict terms
- Personnel have understanding of government contracting nuances
- More agility in decision-making and problem-solving
While alternative lending offers these significant benefits, it’s important to note, as Tom pointed out, that this flexibility and specialized service often comes at a higher cost of capital compared to traditional bank loans. Contractors must carefully evaluate whether their contracts and overall business model can absorb these potentially higher costs. However, for many government contractors, the benefits of working with a flexible lender can outweigh the additional expense.
Economic Environment and Outlook
Our experts also discussed various factors affecting the current economic environment for small businesses, including:
- Uncertainty surrounding the upcoming election and its impact on budgets
- Lingering effects of COVID-19 and supply chain issues
- Tight labor market, especially for specialized positions
- Emerging trends in technology and AI
- Fluctuating interest rates
All of these things have made for some uncertain times for businesses, making careful financial planning all the more important. Success in the government contracting space requires more than just winning contracts; it demands astute financial management and strategic planning. To thrive in this competitive landscape, contractors must thoroughly understand their working capital needs and plan for the inevitable delays and challenges that arise during contract execution. Investing in accurate forecasting and financial modeling tools is crucial, as is diversifying your customer base and industry focus to mitigate risks.
Equally important is a clear understanding of your business and contract credit profiles, ensuring that your contracts can absorb the necessary cost of capital when seeking financing. By focusing on these critical areas and partnering with experienced financial advisors and lenders who understand the nuances of government contracting, businesses can position themselves for sustainable growth and success, even in the face of market challenges and uncertainties. You can watch the full webinar here.