So how is a contractor with limited cash and backlog going to demonstrate financial capability to skeptical financial analysts from Defense Contract Management Agency or auditors from Defense Contract Audit Agency? Here are some ideas.
- Go to your bank and secure a line of credit. Even if you do not use it, having one increase the analyst/auditor's confidence that you have sufficient financial resources to perform under the contract.
- Secure personal loans or promises/commitments from Stockholders. The downside to this is that the Stockholder will need to be prepared to open his/her personal finances to the Government to prove the existence of those resources.
- Secure equity financing. Usually a last resort.
- Liquidate assests - especially those that are idle, underutilized or obsolete.
- Defer or reduce discretionary expenses.
- Defer salaries to owner(s). Don't forget the payroll tax implications on deferred compensation.
- Consider leasing over buying. This is sometimes more costly in the long-run but it does even out cash flow.
- Restructure your debt to reduce debt service cost.