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Margins vs Interest Rate; Some Companies are Missing the Real Story

Admin on October 1, 2018

“Interest rates are rising and cutting into the margins of small businesses.” This is a common gripe amongst business owners.

The WSJ Prime Rate is 5.00% – a historically low number notwithstanding several Fed interest rate hikes. For historical perspective, in 2001 the Prime Rate was 9.00%¹ .

So, are interest rates cutting into margins?

The verdict: Slightly; but not enough to matter.

The impact that interest expense has on margins is often overestimated. Let’s look at an example of a business billing $100 per month; with a revolving line of credit of $100; paying 6% annual interest on the line; and generating a 6% margin.

After interest expense, the business makes $5.50/month – $6 of margin less $0.50 in interest expense.

Over the course of the year, the company will pay $6 of interest ($0.50 per month for 12 months) but will make $72 of margin ($6 per month for 12 months), thus the company will pocket $66. Regrettably, some business owners figure that if they have 6% margins, and pay 6% interest, the interest eats up their entire margin. Clearly not the case.

Even if the company had a non-bank expensive FinTech lender (Guido the loan shark) at 18% annual interest rate their margin would be the same $72 annually with Guido’s cut being $18, thereby pocketing $54.

So what is squeezing the business? Other factors, like fringe rate increases, have a much larger impact

In the above scenario, interest rates are only .50% of each invoice. If fringe is 10% of each invoice, the impact of a 10% increase in fringe costs would have 200 times the impact of a 10% increase in the WSJ Prime rate to 5.50%.

Margins are getting squeezed but the culprit is not rising interest rates but rising fringe costs driven mainly by health care costs. While interest does matter – it is not hurting the bottom line as much as other factors.

Five Lender “Must Haves” When Seeking US Government Contract Financing

Admin on June 28, 2018

Springing up like daffodils in April is a glut of finance companies purporting to be “best-in-class” at financing government contractors.  Most often these companies provide working capital financing to help execute on contracts.  Service providers rarely need term loans unless they are making an acquisition.

Here are five “must haves” for any finance company that stakes claim to “best-in-class.”

1. All-in cost less than standard credit card rate. Some lenders charge well over 20% effective annual interest rate.  Many go even higher – up to 40% in some cases.  Often these companies obscure the true cost.  Take some time to analyze the fees and have your accountant or financial advisor help if necessary.

2. No personal guarantee or validity guarantee. Your customer – the US Government – has perfect credit.  There is simply no reason for you to tie up your personal assets, liquidity, home, etc.

3. No termination fee. As your business grows, you may get offers from other financing sources including commercial banks.  You need to be able to move.  Sadly, many financial companies require hefty termination fees to let you out of a bad deal and into a better one.  Such handcuffs – really just a shakedown – are unfortunate.

4. Specialists in GovCon. You know how unique and specialized government contracting is.  Make sure your financial partner is equally well-versed and experienced in the industry.  As a rule of thumb, make sure that at least 75% of your financing source’s customers are GovCons; that they have provided commitment letters for bid submissions; and that they can increase your facility, without requiring additional underwriting, as you win new contracts.

5. Profitable. Nothing is worse than having your source of working capital struggle financially. In the extreme, they may not be able to fund when you need it. Making sure non-bank lenders are profitable is a challenge as most are private.  Ask them to verify that they make a profit.  They can fib but if something goes wrong you have their misrepresentation on record.  Some companies, especially the internet lenders, are public and you can see their filings.  And some are scary.

To paraphrase Charles Dickens “It is the best of times, it is the worst of times.”  There have never been so many non-bank financing options.  There also have never been so many whose claim, if honest, would be “worst-in-class.”  Be careful.  Be very, very careful.

For more information on Republic Capital Access and what they can do for your business, you can visit them on their website HERE.  In addition more information about Govmates, a teaming partner platform for government contractors, can be found HERE.

Author:  Katie Bilek, Sr. VP Republic Capital Access

Originally Posted on LinkedIn:  https://jamis.com/five-must-haves-when-seeking-us-government-contract-financing/https://www.linkedin.com/feed/update/urn:li:activity:6387772567704334337 

Crushed by Your Fringe Rate in RFP Season? 5 Strategies to Evaluate

Admin on June 11, 2018

After finalizing your WRAP calculations, the verdict is in – costs associated with operating a government contracting business are rising; the fastest rising component is the fringe rate -not the salary.

Fringe and G&A can change during the course of a contract. The most notable is the cost of health insurance benefits and rising insurance premiums. Anecdotally, most firms see 10%+ increase on an annual basis.

This is compounded with the typical workforce demographic seen in the DC metro-area. A strong labor market combined with an educated workforce will look for nontaxable benefits (ex. tuition reimbursements and 401K match) as a means of either differentiation between employers or a means to reduce taxable income. However, these items all must be considered in the proposal pricing.

Five Strategies to Evaluate:

  1. How are benefits administered? There is a multitude of ways that health benefits, P&C, and workers compensation can be structured to lower the effect of fringe and your WRAP rate. Lately, self-funded benefit models have been gaining traction in the government contracting community as a way to lower costs.
  2. Evaluate leases and office space.  If teleworking is an option for your employees – explore a smaller space in a cheaper location?  Paying for empty office space is certainly not what the competition is doing that can put in a more competitive bid.
  3. Explore outsourcing back-office functions as it relates to revenue generation?  Huh – yes not all back-office functions directly lead to revenue.  A lean back office will directly correlate to lower WRAP rate.  Contractors with less than $5 million in revenue don’t need a full-time BD person and an HR director. However, a recruiter in house for a large company could lead directly to more business if you have not filled all seats on a particular contract.
  4. How much is the culture of your company worth?  A great culture could be why employees turn down jobs and stay for less salary.  Less salary, better culture, lower WRAP rate?   Check out the companies winning best culture awards year after year; they are creating several competitive advantages.
  5. Tax Cuts & Jobs Act (TCJA) of 2017 .  The changes to the tax code are limiting the interest deduction to 30% of EBITDA (disclosure, I am not a CPA, check with yours).  There are forms of financing available that are not calculated as debt / interest; but rather loss on sale of an asset.

Author: Matt Stavish, Republic Capital Access

Originally Posted on LinkedIn:  https://www.linkedin.com/feed/update/urn:li:activity:6387772567704334337

FBI Considering One $5 Billion Contract For All IT Supplies, Services

Admin on April 17, 2018

Author:  Aaron Boyd

Rather than create multiple contract vehicles for IT services and tools, the FBI is looking at building a single $5 billion contract to cover all the bureau’s IT needs.

The bureau released an anticipated request for information Wednesday giving industry a few more details on its planned agencywide IT services contract being dubbed Information Technology Supplies and Support Services, also known as ITSSS or IT Triple-S.

The RFI sets the anticipated ceiling for the contract—estimated at $5 billion—and period of performance—one-year base period with nine additional one-year options—though both are subject to change as the contracting office collects more information.

FBI contracting officers at one point had been considering splitting the contract vehicle into multiple parts to focus on specific services like cloud and cybersecurity. Instead, “The Information Technology Acquisitions Unit is contemplating creating an all-encompassing IT services IDIQ based on category management to meet the needs and missions of our customers,” the RFI states.

Those services—or tracks—include cloud and cybersecurity, as well as agile development, operations and maintenance, engineering services, IT consulting, scientific services, telecomm and IT help desk support.

The RFI also asks industry to suggest other tracks that the acquisition team should consider adding to the contract.

Responses to the RFI are due April 20, ahead of a planned April 30 industry day in Washington, D.C. A final statement of work is expected by mid- to late-May. The first draft solicitation is on track to be released July 13.

Assuming this schedule holds, contracting officers expect to make awards by March 2019, and FBI offices will be able to start issuing task orders shortly thereafter.

Original Article: http://www.nextgov.com/it-modernization/2018/04/fbi-considering-one-5-billion-contract-all-it-supplies-services/147410/

Leading Your Troops: What Does It Mean To Be A Leader In The GovCon World?

Admin on March 29, 2018

Much has been written about management versus leadership.  There are many overly shared images about what characteristic leaders have versus those who are considered ‘just’ being a boss. Many books have been written on the subject yet we still find an abundance of poor leadership.

But what does it mean to be a leader in the GovCon world?

  • How can you lead a team of folks who mainly work on the government site and tend to identify with their customers (i.e. going native)?
  • How do you lead when your re-compete is up and you’ve got to reduce your team’s salaried personnel by 25% to win?
  • How do you enforce the rules and compliance in an overly regulated industry that doesn’t always make sense?
  • How do you continue to motivate and push your staff when you are beholden to 2% cost of living raises and a focus on keeping the multiplier down?

As you can already tell, there are a variety of situations that compound the already overwhelmed concept of leadership in GovCon. I believe there are many theories out there, but two common themes that have resonated with me are communication and authenticity.  At the heart of practically every conflict or issue in this world is communication.  If you cannot effectively communicate as a leader, even with the best intentions, you will fail.

What is effective communication?  Saying what you mean, leaving nothing for wild interpretation and being authentic in your message.  Hollow sentiments or glossing over issues will only come back to bite you.  Having hard conversations is never easy, but it’s part of the job.  If you must cut salaries to be competitive on a bid, say it.  Say it clearly and unequivocally.  Provide your rationale and allow for feedback, but make it clear that you are responsible for this decision. Take ownership and allow those looking to move on, an opportunity to volunteer if possible. Communication is vital but so is being authentic.

What is authenticity? Providing and promoting an image that is sincere and true to your character as a leader or a company.  Employees, stakeholders, partners and clients can all spot a fake.  You can fake it for a bit, but eventually your true colors come out and the damage will be near-impossible to correct.  Instead of hiding your personality, embrace your strengths, and be yourself. The effort that it takes to hide or cover your personality can be better spend on leadership decisions and building a reputation on trust and authority. It is much easier to act on the truth than it is to remember and perform on a fallacy.

Regardless of your journey to leadership once you find yourself in a position of authority focus on solid communication and reputation based authenticity. Most companies that find themselves consistently winning awards and crushing the re-compete are those that excel in communication and authenticity. To effectively lead your troops into the GovCon space you must be clear and focused, always.

Visit www.govmates.com to learn more or contact them directly: stephanie@govmates.com

Author: Stephanie Alexander, govmates

Originally Published on FedBid, Inc.

Released: March 29, 2018

Fast — Cheap – and Good

Admin on March 27, 2018

Moore’s law observes that technology performance doubles approximately every 2 years. While the decades-old observation continues to hold true in the technology realm, I keep on finding that Fast, Cheap and Good still applies to everyday life and business.

Here are some examples:

  • Build a Home: You can build it Cheap and Fast; but not Good
  • Buy a Car: You can buy a really Good car; unlikely that it will be Cheap
  • Buying Dinner: Fast Food can be Cheap; rarely Good for your health

The same adage applies to the finance industry – simply – Fast Cash is not Cheap.

Fast Cash:

Prior to the proliferation of the internet, a typical means of getting fast cash was a trip to the Payday loan shop or a visit to Guido the pawn broker.   No offense to Guido’s profession, but he, too, has fallen victim to Moore’s Law in that his colleagues have evolved into virtual loan sharks. Financial Technology companies (aka FinTech) are the web-based lenders whose model is meant to circumvent the commercial banking community in favor of algorithmic scoring of personal credit scores for a quick loan approval.

I understand that not every company can qualify for conventional bank debt, nor do they always have the luxury of waiting weeks (sometimes months) for bank loan approval. However, many of these FinTech lenders choose to exploit their position in the financial ecosystem by charging high rates with unfavorable terms.

As a business owner, you’re focused on running your business; the minutia of loan documents and interest rates (is that an annual or daily rate or a management fee?) is not on your mind.  Anyone can be forgiven for committing to an offer with the appearance of reasonable pricing in glossy advertisements.  What looks at first blush like 3% money may actually turn out to be closer to 48% effective interest rate once the fine print is scrutinized.

Cheap Cash:

Companies lending fast cash are hardly ever cheap, most of these lenders have models built on fast turnover and fast funding. However, a good a banker will take several days to underwrite a loan and this is still how a majority of loans are underwritten.

A business owner should keep in mind – there is an inverse relationship between the cost of capital and the time from start of application to funding.  The lowest cost of capital simply takes time.

Good Cash

Cash is King. The best cash depends on how you use it.  Is the loan going to generate a return that makes the cost insignificant?  If so, regardless of cost that is a good deal for your company.  If the loan is filling that gaps on recurring losses – perhaps the business model is the issue or G&A is too high.  Remember the saying – don’t throw good money after bad.

When I’m approached by business owners asking for help in shedding the handful of high-interest loans on their balance sheet, it all inevitably started with a “fast money” loan from a FinTech lender. Take the same precautions you would in vetting a business partner.  Make sure your capital provider will be there for you in good times or bad – and ease off the google search engine when you feel so inclined to take a virtual trip to see Guido.

FY18 – GovCon UNDERDOG WATCH LIST (THE BD CHEAT SHEET TAKE 2)

Admin on March 7, 2018

Written By: The Pulse of GovCon

In December, The Pulse put out our first FY18 Watch List (aka the BD Professional’s Cheat Sheet). Three months into the year, we thought your GovCon little black book (or pipeline, for you “professionals”) could use some updating!

As we all know, entering into a contract with the Government is just like dating. By that we mean you’re spending time and money on something you don’t totally understand. To help you meet your match, The Pulse has scoured the data and provided a summation of our analysis of those agencies that are worth “swiping right” for.

In the second take of our FY18 Watch List, The Pulse decided to focus on Federal agencies that could be viewed as the underdogs of the GovCon universe. Just because some aren’t on the top of the Appropriators “to-do list” doesn’t mean they aren’t important. These highlighted GovCon underdogs might come with some challenges, but if you put the work in you could find proportionate beneficial results from the following:

  • Department of Justice
  • Office of Secretary of Defense
  • Department of Transportation
  • Department of Treasury
  • Department of Education
  • Department of Interior
  • Department of Housing and Urban Development
  • Department of State

After you’re done scoping the field, make sure to collect your copy of The Pulse’s FY18 [Underdog] BD Watch List!

UPDATED FY18 SITREP: NEW *POSITIVE* OUTLOOK FOR DISCRETIONARY SPENDING

It’s been less than three months since our first FY18 SITREP, and the more things change the more they stay the same. The industry has been projecting a significant infusion of funding to result in a Government spending sprint once the FY18 Omnibus Appropriations Act is passed on or before March 23.  At this point in time, we do not anticipate the doom and gloom of a Government shutdown. Instead, we remain optimistic the Omnibus will pass. With all the angst associated with a possible shutdown, the industry had understandably gotten distracted from asking the right questions. Well, folks, it’s time to start asking again.

The real question is – will Congressional Appropriations go the way of the Administration’s FY18 and FY19 “cut-everything-non-defense-theme” proposed budgets, or will they choose their own path like they did in FY17? Your guess is as good as ours.

Either way, Federal appropriation experts project that major acquisition programs will likely see their programs funded within weeks. However, due to a bunch of red tape, decrease in federal workforce, and just a lack of direction in general, the majority of other programs and new initiatives will not see funding until the end of May at best. The result? The Government has four months to obligate FY18 funds. In all reality, this is no different than what we are all used to with end of the FY spending as we march towards October 1st.

As a rule of thumb, experts anticipate that ~45% of the FY18 Omnibus Appropriations (which is discretionary funding) will go to procurement/acquisition accounts (thanks for the math, NACA!).

UPDATED FY18 CONTRACTING TRENDS

We added a few more to our original FY18 contracting trends:

  • Other Transaction Authority (OTAs): It’s all about the OTAs, baby. Defense has been using them judiciously in order to ignore the imposition of a lot of FAR clauses.
  • Sole Source: J&As above the $22M threshold may be easier to justify as “in the best interests of the agency” because the agency must use all tools available to obligate their funding. They will have direct awards with values greater than those authorized for individually owned enterprises.
  • SB Goal Reaching: Socio-economic GovCons stand to gain traction in this environment as Federal agencies will still try to meet their SB goaling requirements.

NEW ADDITIONS TO THE FY18 WATCHLIST

Below is a breakdown of additions to the FY18 Watch List we compiled at the end of last year. As we all know, entering into a contract with the Government is just like dating. By that we mean you’re spending time and money on something you don’t totally understand. To help you meet your match, The Pulse has scoured the data and provided a summation of our analysis of those agencies that are worth “swiping right” for.

DEPARTMENT OF JUSTICE (DOJ)

Deltek GovWinIQ projects that between FY17 – FY19 DOJ’s discretionary budget authority will decrease by almost 50%. But it’s not all bad news. DOJ’s contract spending has actually gone up 3.8% since FY16. President Trump’s FY19 proposed budget calls for discretionary savings to the tune of $12.5B removed from DOJ’s requested budget action, but that doesn’t mean that Appropriations is going to listen.

DOJ is undoubtedly going through some turbulent times, and their workforce remains thin, so we recommend to GovCon that when you approach, do so with care. Offer up your help, guidance, and an efficient way to solve their problems areas — they’ve been hurt before.

OFFICE OF SECRETARY OF DEFENSE (SECDEF)

As we stated above in our SITREP, Defense in general will have to spend around $25 -$40B in the last four months of this FY.  However, the law mandates that the Pentagon cannot spend more than 20% of its money in the last two months of the FY. That means Congress, with the FY18 Omnibus Appropriations Act, must include language lifting these restrictions and granting flexibility to the Pentagon. Last week, top House defense appropriator’s outlined their options to extend Defense funding such as including language in the FY18 Omnibus, which would allow the Pentagon to fix its growing readiness crisis.

This “influx of money” problem will be interesting as SecDef is juggling a lot of change right now, and this could complicate the decision-making process for dollar allocation.

SecDef might just go through a bit of a mid-life crisis, so don’t be surprised if they up and buy that new Porsche just because they can.

DEPARTMENT OF TRANSPORTATION (DOT)

How many infrastructure weeks have we had so far in this Administration? It’s no secret that the word “infrastructure” is on this Administration’s top 10 favorite word list, carrying big revenue implications for Federal, State, and local GovCons. In February, the Administration released the details of their Infrastructure Initiative, which proposes to reallocate $200B in federal funds over a decade to generate a $1.5T total infrastructure investment.

BGOV’s OnPoint presentation provides a great summary of this Initiative and how GovCon can benefit. Sounds like a solid foundation to build a new relationship.

DEPARTMENT OF TREASURY (USDT)

The Administration’s FY19 budget proposes to re-allocate funding from “non-mission critical areas” to invest in the financial enforcement tools that would safeguard the financial system and bring maximum economic pressure against North Korea. USDT has been working within budgetary pressures for a few years now, but this Administration aims to further cut discretionary spending by 3%. Yet at the same time, they are tasking USDT to begin a “program integrity initiative” to narrow the gap between taxes owed and taxes paid in order to reduce the deficit by “$29B over the next 10 years.”

It is clear that this Administration and Congress expect USDT to continue to do more with less, but that doesn’t mean they don’t have a lot to give to a partner. Targeting persons who facilitate North Korea’s illicit shipping practices is going to take solutions and resources, so this is the relationship for you if you like a project.

DEPARTMENT OF EDUCATION (ED)

ED has identified 21 different initiatives it has for its Agency. Some that should be of interest to GovCon includes: Digital Government Strategy, ED Data Express (link was broken…awkward), Education Dashboard, Military Families and Veterans, and Open Government. However, it seems like ED is all dressed up with nowhere to go, considering the Administration is pushing to cut $7.1B (10%) from their FY17 enacted level.

Similar to DOJ, it is not all bad news — according to Deltek GovWin IQ, ED’s contract spending seems to be up 3.3%. ED might come with a lot of baggage, but we all know the children are our future.

DEPARTMENT OF INTERIOR (DOI)

Information technology, energy development, drilling funds, and national parks (kinda) seem to be the focus of DOI for this FY. Believe it or not, DOI proper actually requests a $1.6B decrease from their already anemic budget in their FY19 budget request, which could cause appropriators to slash even more for FY18.

The initiatives are vague, but at least DOI knows how to choose a solid profile picture to distract you… especially if you like the outdoorsy type.

HOUSING AND URBAN DEVELOPMENT (HUD)

HUD seems to be busy doing weird, non-Government things… between the Secretary constantly stating that running HUD is “more complex” than brain surgery and simplifying their mission statement to be “more inclusive”. But no fear, they apparently have a ton of money ready to spend since the Secretary canceled his order for a $31,561 executive dining room set. Lucky for GovCons, it’s not all HomeGoods and brain surgery around the hallways of HUD.

We assume the “complexities” the Secretary was *complaining* about has to do with the mega-disasters which have devastated America in 2017 causing at least $306B in destruction and leaving hundreds of thousands without housing. Sounds pretty complex to us since HUD is one of the three Federal agencies that primarily oversees and distributes housing recovery money when a natural disaster strikes.

HUD oversees long-term recovery efforts that include replacing destroyed homes and rebuilding damaged roads and Government buildings. So far, Texas is set to receive $5B in HUD disaster relief aid. For those GovCons in the A/E and Construction business, we recommend looking into HUD’s Rental Assistance Demonstration (RAD) Program, which allows housing authorities to partner with private investors. This program will be in high demand over the next few years and with an under-resourced HUD – GovCons can come and offer more than just a helping hand.

WILDCARD – BOOM OR BUST?

DEPARTMENT OF STATE (DOS)

We wish we knew what was going on with DOS. Not only have they been on a hiring freeze since the Administration took office last January, but the agency lost 12% of its foreign-affairs specialists in the first eight months of the Administration shrinking their civilian workforce by more than 6%.

We fear that DOS will meet significant proposed budget cuts with continued dramatic personnel reductions. However, DOS insiders state that rhetoric around reorganization has shifted from sweeping personnel cuts to upgraded technology and improved training. So maybe there is hope for this wildcard after all?

SO WHAT IS OUR POINT?

Money is about to start moving folks, and you need to have your pipeline dressed and ready to impress. Feel like you might need a quick makeover before the date? Use this analysis as proof points for pipeline building and to impress your boss at your FY18 pipeline meeting. Good luck!

Love Interest Rates and Like Loan Structure?

Admin on February 14, 2018

Written By: Matt Stavish, Vice President at Republic Capital Access

Happy Valentine’s Day.

Today couples are acknowledging their love for each other with cards and small chocolate candies. In the financing market we are seeing companies profess their fondness for the cheapest money they can find on the market, while not paying too much attention to loan structure. Hence the title: Love Interest Rates and Like Loan Structure? I would argue that companies need to Like Interest Rates and Love Loan Structure.

It is not surprising that CFO’s will look for the best rate in town; who doesn’t enjoy telling the competition that you are getting the cheapest rate around. However, the real cost of money is the summation of several intangible qualities that impact the business far greater than the cost of borrowing. We will call this the Absolute Cost of Borrowing.

A few factors in determining the Absolute Cost of Borrowing:

·      Time: How much time will be spent making sure the company adheres to the loan covenants? Does the business have a capable back office? How much time will the financial staff spend managing covenants, preparing borrowing statements instead of helping draft a pricing proposal?

·      Fees: A big part of the Absolute Cost of Borrowing are the additional fees. Fees matter and they are paid in dollars just as interest. There are a myriad of fees, here are just a few: Documentation Fee, Termination Fees, Lien Search Fees, Financial Capability Letter Fees, Collateral Monitoring Fees, Loan Servicing Fees, Wire Fees, ACH Fees

·      Producing Timely Financial Reports: A common request from the lender is the production of financial documents within 45 days of a quarter end. Often, this has a ripple effect through a firm’s back office support systems: accounting systems and time keeping systems. Coupled with complex contracts, producing financials for a small business could be very costly.

·      Lost Potential Revenue: If your financing source does not understand your business you could be letting opportunities slip through your hands. What if they can’t increase your line of credit to match your growth? Or worse, your company decides to ignore RFPs because they don’t think the financing source will be a willing back to accommodate the win.

A general rule of thumb is that the lowest cost of capital will have more strings attached, period. If your company is not quite ready for that commitment, look for a capital provider with more flexible terms, even if it costs you a few extra points. Companies are not going out of business because they paid 50 basis points more for a line of credit; they go out of business because the line of credit was frozen for violation of covenants. You might find that you too Like Interest Rates and Love Loan Structure.

Shutdown Screws Small GovCons

Admin on January 23, 2018

I normally never write about politics, recognizing that half of my network leans one way, while the other half leans the other.  I tend to live by the “no politics or religion” in public domain, school of thought.  But this latest shutdown has me completely livid over its stupidity and its potential impact on the small GovCon world.

While government employees will enjoy a day or two at home and will eventually receive their backpay for doing absolutely nothing (to be fair, through no fault of their own), small govt contractors will not fare as well.  Those deemed non-essential will generally be forced to use their PTO to stay at home while the work piles up.  Given the last-minute call, few companies have their act together enough to deliver all day training sessions for their employees today to use their overhead dollars wisely.  Outside of PTO, it’s leave without pay (LWOP) as generally, we can’t put your expense on overhead, driving our multiplier up and our competitiveness down.
​
While a day or two (which hopefully all this is) won’t kill any company, the more it lingers, and the more uncertainty, the less willing smaller companies will invest, hire employees or make decisions.  The indecision of the government funding grinds most smaller companies to a halt.  Small business does not have the cash reserves that the billion-dollar club has.  They are subjected to pay-when-paid terms as subs, and there’s no one in the government paying contractors, so cash dries up.  Back in 2013, the impact of 16 days of shutdown wiped out net income for the year.  If you were living month to month on 4% profits, just one pay period worth of not billing was devastating.

Enter January, when PTO balances are reset, and lower due to the holidays.  Credit card bills from the holidays are due this month.  New hires have just started with the new year with zero PTO built up.

The talking heads blame each other and throw out the military and payment but to be honest, they will be fine.  They will receive their paychecks.  As will the hundreds of thousands of government officials who stayed home today.  They will come back to more backlog (thank you for all the hiring freezes).  RFP releases, contract awards, and payments will all be postponed, directly impacting contractors.

Large GovCons will weather the storm, utilizing their cash reserves, blaming the shutdown for poor earnings reports and postponed contract execution.
Small GovCon, you will be screwed should this last any length of time.

And don’t even get me started on passing another CR.

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