Ideas & Insights

Federal Contracting: The Value of Timely and Accurate Financial and Project Data

Federal Contracting: The Value of Timely and Accurate Financial and Project Data

After spending the majority of my career with large public companies, when I moved to consulting with small- and medium-sized companies one of my first observations was the difference in focus on financial and project data. At large companies there is rigorous and frequent reporting and review of both financial results as well as forecasts, at small- and medium-size companies there is much less focus. Some of this difference is driven by both SEC and quarterly earnings reporting requirements, and the fact that larger companies can staff up their financial planning and analysis teams. But more importantly, the difference is driven by management’s use of the data to assist them in making decisions.

Timely and accurate financial data is as important, or more important, for small and medium companies as the owner’s and manager’s decisions are critical to the company’s success and survival. Often owner/managers of these companies find themselves caught up in the day-to-day operations and do not take the time to review financial data. This is a mistake, as owners/managers need to make financial data driven decisions. “Gut feel” and “worked last time” decisions may work out occasionally, but too often they do not.

You do not need a team of financial analysts to obtain the data you need, it can be as simple as ensuring you keep your QuickBooks data up-to-date. Financial and project data should be reviewed at least monthly, if not more frequently. The financial and project data should be correlated with the business operations activities. Managers should ask themselves if the financial data correlates with what is occurring in operations, and if not, investigate why – using the data to assist in decision making.

Examples of key data that should be reviewed include:

Contract Financial Performance – Cumulative cost to date compared to contract value and progress for each contract – is the cost and contract progress in alignment and within expectations? If not, investigate why.

Cash Conversion Cycle – The Cash Conversion Cycle (“CCC”) is a metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows. The cash conversion cycle is calculated as:

CCC = DIO + DSO – DPO

Where: DIO = days inventory outstanding

DSO = days sales outstanding

DPO = days payable outstanding

The CCC is also referred to as the cash cycle.

Profit and Loss Statements – Are the actual results for the month and year to date within expectations? If not, investigate why.

Balance Sheet Accounts – Are there any items that are stagnant or growing on your balance sheet. For example, inventory and accrued liabilities.

Indirect Expenses and Rates – Are the actual results for the month and year to date within expectations? If not, investigate why.

Backlog – Contract value for all contracts, less costs incurred to date. How far in the future does your current book of business go out into the future? If not far, focus on business development.

Maintaining your books and records and timely and frequent review of key financial data will alert you to issues and opportunities providing you the opportunity to take proactive actions.

If you would like assistance in developing a financial and operational reporting package tailored to your business – let’s talk.




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