For small businesses, the strategic planning process is multi-faceted. We have to think about where the company is, and where it needs to be, as far as its capabilities, infrastructure, and direction, but we also have to think about strategic planning in terms of growing the business and growing revenue. And though they’re very much tied together, you have to have a direction in order to focus your growth.
As a small business, it’s imperative to figure out your areas of expertise and focus, before you say we’re going to go out and grow, and by how much. What are you going to grow? A new capability? Maybe. It could be part of your corporate strategic goal to add this capability to your repertoire. Or, maybe, you’re going to expand your existing capabilities because you’re very good at them, and you want to leverage your strengths.
Strategic planning is an iterative process. It is important to take care of your overarching strategic plan before you plan your growth, because your areas of growth and the things you want to accomplish should be governed by the overarching goals of your company.
In a series of posts, we’ll look at these different areas of strategic planning and what you need to consider.
Strategic planning is not a point of time, but your plan is continuously revised as you get new information, and as things change in your organization. It’s always a working plan, and a work in progress.
What should a small business’s back office look like, and how should it function? I sat down with TAPE’s Executive Vice President/General Manager Ted Harrison and we put some thoughts together.
A small start-up business has evolving needs as they begin and grow their business. These needs are ever changing but here are just a few functional areas that will need some attention and thought from the beginning.
IT: Information technology is probably an easy thing to keep simple in the beginning. Each employee should have their own email on a company domain name (e.g., tape-llc.com), and this can be set up fairly cheaply.
You can implement a shared cloud-based suite for collaboration such as Google Drive or Apple iCloud. These solutions are often enough to support a very small business’s needs. You can also take advantage of the benefits of Microsoft Office 365, which can grow with you.
As the company begins to grow and protection of IP against cyber threats becomes more important, you will want to look at investing in an IT network either through outsourcing or internal support. (CMMC is just around the corner!)
F&A: In the beginning, your finance and accounting needs can be managed through QuickBooks or other rudimentary finance software.
When payroll and AP become more complex and the company requires bank capital to operate, management by a dedicated accountant will become necessary.
Once the accounting department grows to several people, it will be time to consider oversight by a controller. Outsourcing this function may be most cost effective in the early stages as you grow.
HR: The human resources function can be outsourced from the beginning, if needed, to ensure that all Federal and State regulations are satisfied. It is fairly inexpensive to outsource the recruiting function.
Once requirements increase including payroll, recruiting, and employee relations, it may be beneficial to have an HR director to manage the function.
Contracts: A small company can often rely on expertise from the SBA, PTACs or other small business support entities, but once contracts grow it will be beneficial to have a dedicated contracts manager to ensure compliance with FARs and DFARs.
Your small business’s infrastructure will grow and change as your business evolves. Pay attention to where you’re feeling stretched so you can get the right support in place well before it’s needed.
As your small business grows, your needs and regulatory requirements change. You have to have approved forward pricing rates and go through audits. These are things that may be best suited to be led by a controller working directly with your organization, rather than an external bookkeeper or accountant.
How to hire a controller
The first thing you need to determine before hiring a controller is which functions you actually want or need out of the position. Bookkeeping, accounts payable, accounts receivable, payroll, audit preparation, government rates submissions, pricing efforts…the list goes on.
You need to also consider the level of experience and the systems they are expected to know and understand. Are you doing a conversion from an older system to something like Deltek Costpoint? If so, you may need someone with that requisite experience, and that experience does come with a price tag attached.
Are they the lone ranger in their section or will they be managing staff, leading a team made up of payroll and AP personnel or even a junior bookkeeper?
How much experience does the controller need to have in your specific industry?
This is a tricky question in our GovCon industry. There are many requirements of us that the typical controller for a commercially-focused company may not know about or understand. Pricing and your direct/indirect rate structures are critical to your success and you want someone very familiar with these aspects.
What are important qualities to look for in a controller?
- CPA designation
- Trustworthiness – After all, these folks will have access to all your organization’s financial accounts and data
- Length of time at previous organizations – This is important because it takes some time for a controller to get acquainted with your organization and ways of doing business. You don’t want to get them up to speed and then have them leave quickly – likely to a competitor – with knowledge of your rates and practices. NDAs are needed but remember the NDA doesn’t erase their memory.
To find controller candidates, look to your network or colleagues, friends, and industry organizations, as well as previous controllers or accounting staff; also consider third-party sites, recruiters, and LinkedIn.
Here at TAPE we’ve just gone through the process of hiring our own new controller. We found the most important thing to do is to really define what you want before going out to look to fill a position. It’s also important to form a comfort level with that candidate. They will know all things financial about your organization. You have to be comfortable with that, and with them.
1. Find out if your business is qualified
Ultimately, the most accurate way to find out if you qualify for a business credit line is to apply — but you wouldn’t want to apply to many lenders only to get rejected or receive a disappointing offer.
To get a quick pulse on if you’re qualified for funding, consider the factors below:
Most lenders will look at your personal and/or business credit score to figure out the riskiness of your business. The stronger your score (680 is usually the cut-off for banks), the more options you have. However, just because you have a weaker credit score doesn’t mean you won’t be able to qualify for a business line of credit at other lenders.
To determine whether you can pay back your credit line, lenders will look at your monthly or annual revenue from your income statements as well as the trajectory of your revenue over a period of time. Your annual revenue is one of the most important metrics lenders look at; when they see your sales grow month after month, it shows that you know how to run your business and execute on your business plan. This not only makes lenders more likely to lend to you, but also makes them more likely to gradually increase your credit line to support the growth of your business.
When you apply for a business line of credit, lenders will ask you how long your business has been in operation. Banks look for businesses that have been around for at least two years. If you’re a new business (between three to 12 months old), online lenders are a better option because they’re more willing to take on the risk of lending to younger businesses.
Different types of credit lines
There are many types of business credit lines. One major difference is credit lines with short or long repayment terms.
- Short repayment terms are credit lines with six to 12 months repayment terms. These terms are ideal if you’re looking to pay off your line of credit faster and want to potentially save more in interest.
- Long repayment terms are credit lines with repayment terms over 12 months. Longer repayment terms make sense if you need more time to pay off your credit line or want lower monthly payments.
Short-term business line of credit
If you’re looking for a business line of credit with short repayment terms, it’s worth applying to online lenders. Online lenders are generally a better option for businesses that are looking to save time on the application process and want access to funds on-demand. Additionally, since online lenders offer shorter repayment terms, the requirements aren’t as rigid.
When you apply to an online lender you will usually get a decision within one to two business days. To apply to an online lender follow these steps:
- Apply online: for lenders that have shorter repayment terms, they typically have an online application process that takes at most five minutes to complete.
- Upload your statements: online lenders don’t require much documentation; at most, you’ll need to upload three months worth of bank statements. If they need more information, they may ask for your tax returns and/or a debt schedule.
- Get a decision: once you’ve submitted an application, you should get a decision within one to two business days.
Long-term business line of credit
If you want to get a business line of credit with longer repayment terms, you should apply to a traditional bank. Here are the steps you’ll need to take:
- Check your credit score and business financials: to qualify for a bank line of credit you should expect to have a strong credit score of at least 680 and stellar business financials (stable cash flow, high revenue, and little to no existing debt). You may want to consult with a finance professional beforehand so that you have a clear picture of your business’s financial health.
- Get all of your documents together: When applying for a business line of credit with longer repayment terms, you must be prepared to submit a lot of documentation. This includes historical financial statements, balance sheets, tax returns, P&L statements, and income statements.
- Apply and wait: Once you’ve sorted out your documents, all you have to do is apply and wait. Some banks such as Wells Fargo still require you to visit a branch in order to submit your application. After you apply, expect to wait at least a couple of months to get a decision.
2. Compare your business line of credit options
Now that you have a general idea of how to apply for a business line of credit, your next step is to understand the major pros and cons of each type of popular lender:
Traditional bank lines of credit
Getting a line of credit from traditional banks are highly sought after because of their affordability and terms. If you manage to get a line of credit from a bank, you probably should accept the offer. But securing a line of credit from a bank is a lot easier said than done. To qualify for a line of credit, traditional banks often require at least two years of business history and $250,000 in annual revenue.
A good first step to securing a business line of credit with a bank is to contact the bank you have an existing relationship with. However, you should note that most banks have a time-consuming application process. If you have a hard time getting accepted by traditional lenders but still want reasonable rates and terms (like Bank of America or Chase) you might want to consider a line of credit from your local credit union or community bank.
Online lender business lines of credit
For those who don’t have the time or resources to spend filling out a traditional bank application, online lenders are a better option. In order to qualify for a business line of credit, most online lenders will ask you to complete the entire application online. The best part is that most online lenders don’t require sky-high credit scores or extensive financial records.
Once you submit your application, these lenders use a combination of both automation and manual underwriting to get you an offer. This means you can get a decision on your application within one to two business days. The interest rates are slightly higher with online lenders because they get the funds they lend to businesses from capital markets which is more expensive. But their application and approval processes are typically much faster.
Business credit lines from credit unions
Credit unions are member-owned and not-for-profit. This means that each member of a credit union has equal ownership and that any earnings made will go back to improving their products and services, which means lower rates and generally better products for their customers. To join a credit union, you usually must qualify for their field of membership, pay a small fee, and use your account frequently. Fields of membership vary depending on the credit union. Some credit unions are community-based, which only requires you to live within a certain area, and others are occupation-based.
A major drawback of credit unions is ease of use. Most credit unions have fewer branches and ATMs, which can make drawing funds a hassle. Additionally, credit unions don’t have strong mobile and online banking capabilities like online lenders and banks.
3. Know the minimum requirements
The following table is a broad overview of the minimum qualifications for each lender. As you can see, traditional banks are the hardest to qualify for, followed by credit unions and online lenders. Please note that the information here is not definitive; you should use it as a benchmark to gauge where your business stands the best chance of getting a business line of credit.
4. Understand the total cost of interest rates and fees
Annual percentage rate (APR)
When it comes to rates, it’s often thought that APR is the only rate to keep an eye out for, but that simply isn’t true. APR, or annual percentage rate, is an annualized percentage of the original loan amount plus the additional fees.
While knowing the APR is important, in some cases knowing the simple interest rate – the amount of interest you pay as a portion of the loan – makes more sense and may be cheaper. For instance, if you plan on borrowing money for less than a year, calculating the simple interest rate would give you a clearer picture of how much the loan would cost you than an annualized rate.
Simple interest rate
The simple interest rate is the interest you’ll pay to the lender on top of the loan you’re borrowing. You can use this formula to calculate simple interest rate:
Simple interest rate = Total interest charged / Loan amount
So if you are charged $100 in interest fees on a $10,000 six-month loan, you would pay a 1% simple interest rate.
Other lender fees
Here are some of the most common fees that lenders charge to use a business line of credit.
- Draw fees: Draw fees cost between one to two percent of the total draw amount. They are charged on each draw that you take.
- Payment processing fees: Payment processing fees are incurred depending on how fast you want funds deposited in your bank account. A wire transfer can get you funds within hours but usually costs between $15 to $35. The ACH method is usually free of charge but takes about two or more business days to complete.
- Late fees: When you pay late or fail a payment, you may be charged with late fees. Late fees usually cost a low percentage of your credit line but can add up quickly.
- Termination fees: If you decide to end your line of credit at any point before the full term of your loan, you may have to pay a termination fee of one to two percent of your credit line.
- Prepayment fees: Some lenders will actually charge fees if you pay your draws off early. These fees range from 3 to 5 percent of the loan principal. The good news is that many online lenders offer no prepayment fees.
5. Gather your financial documents and apply
The last step to get a business line of credit is to gather your documents and wait for the right time to apply. Here are some of the documents and type of information you’ll be expected to submit to a lender:
- Personal information: to verify your identity, lenders will require you to submit information about yourself. This includes your full legal name, social security, criminal record, and educational background.
- Bank statements: many lenders require at least one year of bank statements; alternative lenders are the exception to this and need only three months of statements.
- Financial statements: to determine the financial strength of your business, you’ll need to submit important financial statements such as your P&L sheet, cash flow sheet, and balance sheet.
- Information about other stakeholders: if you own less than 50% of the business, you must provide information about any additional stakeholders.
- Legal documents: depending on the lender you apply to, you will be expected to submit one or more of the following: business licenses and registrations, business formation document, business tax ID, contracts with third parties and/or UCC filings.
- Debt schedule: if you have any existing debt, some lenders will expect you to provide a debt schedule. This shows all your business’s outstanding loans, credit, and payment schedule.
- Tax returns: lenders will require you to show personal and business income tax returns over the last three years.
After you’ve applied, all you need to do is wait. Applying when your business is doing well is a smart way to increase your chances of getting a business line of credit, as well as getting a higher credit line amount.
This post originally appeared on the BlueVine blog at https://www.bluevine.com/how-to-get-a-business-line-of-credit/.
This is a guest post by Stuart Blake of BlueVine.
Having available cash on hand is crucial for businesses of all sizes, and a business line of credit is often a great way to get that cash. A credit line can help when you have unexpected cash flow gaps or when you want to take advantage of opportunities that arise. That’s why so many business owners have turned to a business line of credit—according to a 2017 study by the Federal Reserve, a business line of credit was one of the top three most popular financing options amongst business owners who applied for financing.
But how easy is it to actually get a business line of credit? Your chances of getting a credit line largely depend on a few things: your qualifications, the lender, and type of credit line you want.
Most line of credit lenders require businesses to have at least a few years of history and healthy revenue numbers to qualify for a line of credit. Larger lines of credit may require additional requirements, such as collateral.
This can all seem intimidating — especially if you’re a new business. To make the process easier, we’ve laid out five straightforward steps to securing a business line of credit.
- Review your credit score and finances. Your credit score and financial history are a big part of your business line of credit application. A higher credit score will give you a better chance of getting approved.
- Compare your options. Compare your lending options (link to Part 2) to get an idea of how well you qualify for a business line of credit.
- Check the requirements. Traditional banks tend to be harder to qualify than other types of lenders.
- Know the cost. Some lenders are more costly than others. Make sure you know your interest rates and fees upfront from your lender.
- Gather documents and apply. When you’re ready, gather and submit your documents and business information, and you’re done!
Why consider a business line of credit?
A business line of credit is a convenient form of financing for businesses that want a flexible way to cover working capital expenses or finance growth opportunities. Whether you need funds to pay rent, cover payroll, purchase equipment or take on a new project, a business line of credit can create a cash cushion when you have cash flow gaps and want to keep your business running smoothly.
Business lines of credit are inexpensive to maintain, especially compared to other forms of financing (think term loans or merchant cash advances). Keeping one open costs virtually nothing—and just like how a personal credit card works, you’re only responsible for paying interest on the amount you draw.
Common business line of credit application mistakes
1. Not having a clear idea why you need the funds
You should always have a game plan when applying for a business line of credit or any form of financing. When we speak to potential clients, we want to make sure that the financing we’re offering fits into a longer term plan for the business.
Sometimes business owners obtain financing without a long-term strategy. Some businesses have applied for financing with us two months after getting a short-term loan with another lender. That limits what we can do for them because now they’re more leveraged. It affects what we could offer them. When there are liens on a business that might limit our offer. From what could have been a $50,000 credit limit, we’re now looking at $20,000.
2. Rushing through the application
If you’re a small business owner, it’s a given that you wear many hats and work very long hours. So when there’s a desperate situation and you need funds quickly, it may be tempting to rush through as many credit line applications as possible. Sadly, this can hurt your chance to obtain financing.
Simple errors can cause you problems, such as a typo in the EIN [employer identification number] or using the incorrect business address.
That’s why you should set aside at least an hour of your day to really focus on the application.
TIP: Make sure you list the best contact number or information. There are times when business owners put down the main business line or email even though they typically don’t answer calls on that line. So lenders end up not being able to get a hold of them, leaving business owners wondering why they haven’t gotten a response.
3. Being dishonest on the application
You may be tempted to over-state your financial standing on your application. Bad idea.
Lenders know that sometimes businesses are in a desperate situation. But don’t try to fudge the numbers, because that typically gets exposed in the end through their underwriting process. And once the lender finds out, it can really hurt your chances of getting a line of credit.
So keep this in mind: never compromise the integrity of your business.
Ready to get a line of credit?
A business line of credit is one of the most convenient forms of financing for businesses. Before applying, it’s important to consider your business’s financial health, know the rates, understand your options, and gather the appropriate documents. Make sure your application stands out by having a web presence, inputting the correct information, and being honest about your business financials.
This post originally appeared on the BlueVine blog at https://www.bluevine.com/how-to-get-a-business-line-of-credit/.
This is a guest post by Ross Statham of Dogwood Services Inc. Note from Bill: In a previous post, Ross shared the top three reasons to hire an executive search firm, and offered his expert tips for ensuring a productive partnership.
Want to tackle the hiring process yourself? Here are some suggestions for how to proceed, though keep in mind that the top talent will rarely respond to job postings.
- Allow sufficient time. My own experience has been to allow two or more hours per day (minimum) for 2-3 weeks.
- Determine the salary range, daily duties, and a brief overview of desired qualifications.
- Ask for help. This could be from your HR department, from subordinates, or from others on your team. They could help you write a good job description, help you better communicate with candidates and help you to find and select better talent.
- Setup someone you trust (HR, a member of your team or subordinate) to do some of the heavy resume filtering before handing them over to you.
- Post your job opening. But as noted above, don’t have the resumes come to your work email (which can be overwhelming), have them go elsewhere for filtration.
- As the resumes arrive to you, toss out those who obviously won’t make your cut. Those who are a “maybe” can be sent a (form email) note thanking them for their interest, and spelling out some details of what you are looking for and painting a realistic picture of the job. Many people can be filtered out this way, saving you additional looking.
- If you need to perform a software “scan” for key words again (perhaps using a Boolean search), now’s probably a good time to do so. This is particularly helpful with technical positions, when you’re looking for details of what they’ve done and when.
- At this point you’re starting to see where some resumes are starting to meet your needs by putting eyeballs on the ones that get your attention. Save these; if you think it appropriate, you can put their names on a spreadsheet (such as Google Sheets) with notes.
- As your eyeballs scan resumes, look at their last three jobs. How long were they there? What did they accomplish? What were their daily duties?
- If they continue to hold your interest, drill down from “scanning” to reading. Look for obvious negative and positives. Red flags may include employment gaps, evidence of decreasing responsibility, a career that has flattened or is moving in the wrong direction, short-term employment at several jobs, and multiple shifts in their career path.
- Continue to review your selected resumes against your criteria and each other.
- Found someone you like? Look them up on LinkedIn and Google them and see what you can learn about them.
- Telephone screen potential candidates.
- Bring in strong candidates for a face-to-face.
Again, you need to ask yourself if you really have the time. If so, then have at it! But if you’re like most busy executives, using an experienced outside expert will tremendously shortcut the process which will save both time and money. Most importantly, it will help you find those harder to find talented people who rarely respond to job openings.
This post was originally printed on LinkedIn at https://www.linkedin.com/pulse/finding-flood-resumes-ross-statham/ and was adapted and reprinted with permission.
The firm I founded and lead (Dogwood) provides talent across a wide range of industries (including the Fortune 10), non-profits and government. Typically we are called in by those who have had previous experience with trying to do their own talent search and found it was much more efficient to use us or other recruiters, or by those who tried to do their own search but realized that it was more than they could effectively take on.
First, let’s discuss the three biggest reasons that organizations use outside search firms:
- The best talent rarely responds to job openings
- Your H/R department may be not equipped to help with this
- Not enough hours in the workday
Challenge #1: The best talent rarely responds to job openings
You’re probably heard it before, and it’s true. The top talent is careful and circumspect as to making career moves. The best talent rarely goes looking for new opportunities – but they will listen when the right opportunity presents itself.
Many years ago this happened to me. I received one of those calls out of the blue, which turned into a great new job well suited to my own talents in the tech field. I loved my new job and never looked back.
Your best talent will usually need to be recruited (reached out to) by someone outside your organization. Executive recruiters use their own databases, can dig and find the right talent and pitch your organization’s strengths to the very best prospective talent.
Challenge #2: Your HR Department may not be fully equipped to help
My general observation is that most HR departments may not be fully equipped to find talent, because it’s not their primary responsibility. Even at the company I lead (a talent acquisition company, no less), our own HR folks are concerned with administering to employees, ensuring that benefits are being properly managed, paperwork is up to date, regulatory compliance is being fully met and in dealing with the myriad of payroll, benefits, vendor, personnel and other HR issues that arise every day.
Most HR departments have stated goals to include talent acquisition in their responsibilities, but even the best HR departments have difficulty in doing so. However, my opinion is that most do an excellent job of supporting the process once candidates are identified and interviewed.
Challenge #3: Not enough hours in the workday
If you’re like most people, you are constantly adjusting your daily priorities in order to get things done on time and under budget.
Do you have time for this? Probably not. Our past experience has shown that those searching for talent need to allocate between 1-3 hours per day per job opening to pore through resumes, screen out those who are completely unqualified, second screen those who may be of interest, conduct basic phone screens and perform some basic information searches on potential candidates.
Free up your time by using an outside expert
By now you are learning why successful executives use outside executive search firms.
First, find someone who already understands your industry (so you don’t have to educate them) and who already knows where some of the best talent can be found. Make sure they’re reputable, well established and have a track record of success. (Yes, it’s okay to ask for references!) Ideally, they’re large enough to be well established, but not so large that your needs can get lost in the shuffle.
You can use a contingency-based firm (where you only pay for success), or use a retained-search firm, where you pay a fee (in advance) and they exclusively represent you to candidates. Either way works, but I generally recommend you select an experienced contingency-based firm that you’re comfortable with and give them an exclusive for 30 days. That way they’re focused on you, you have a definite time frame in front of them, and you’re only paying for results. If they don’t work out, you can add someone else to the mix as needed without additional cost.
Allocating time to your expert
One of the best executive recruiters on our team tells his new clients that he’s their sharpshooter, and they’re his spotter (to tell him how he’s doing with the people he sends them, or in military terms, to tell him where his shots are falling). Because the hiring manager he’s working with has a need for specific talent, they form a “partnership” for a relatively short time while he finds, filters, screens and interviews talent for the client. Keep that in mind – these outside experts need your input for this to work in a timely manner.
During your initial call (which should only take about 15 minutes), tell them what you’re looking for, what you’re trying to accomplish and details about the job as you see it. Perhaps refer them to a subordinate for additional details and discuss compensation and benefits. Good executive recruiters know what kind of questions to ask and will guide you through areas you may not have even thought about.
Once you’ve started the process, turn them loose and let them do their jobs. You should start to see real results within two to five business days, depending upon the complexity of your needs. But remember – they need you to communicate where their shots are falling. Just five minutes per day allocated to your executive recruiter during the search can yield stellar results.
This post was originally printed on LinkedIn at https://www.linkedin.com/pulse/finding-flood-resumes-ross-statham/ and was adapted and reprinted with permission.
The 17-person 809 panel, created in Section 809 of the FY 2016 National Defense Authorization Act (NDAA), was tasked with finding ways to streamline and improve the defense acquisition process. The panel had two years to develop recommendations for changes in the regulation and associated statute to achieve those ends.
As part of its review, the Section 809 Panel reviewed the DoD small business program. The panel ultimately developed several specific recommendations designed to improve how the DoD small business program supports DoD initiatives. One of the major areas of interest was determining how to promote the entry of non-traditional DoD companies who offered advanced technology and innovative solutions to DoD challenges.
I met with the 809 Panel in February 2017. I found it important to note that mid-tier companies performing in the DoD market sector play a major role in generating jobs and enhancing overall economic growth for the Nation and that mid-tier companies, defined as companies earning $25M-$500M annually, are being squeezed by small businesses on one side and by large businesses on the other.
In that context, I offered seven points, which also generally apply to small businesses, innovating companies developing new technologies, and companies that are new entrants into the defense market space.
- First, mid-tier companies cannot grow effectively if they are primarily subcontractors to large businesses since subcontractors are unable to obtain significant workshare. Large businesses have little motivation to offer mid-tier companies significant work since DoD acquisition policies encourage them to award subcontracts to small businesses.
- Second, the primary pathway for growth for mid-tier companies is to win large multiple award, indefinite delivery/indefinite quantity (IDIQ) contracts as primes so they can compete for agency task orders. However, to win these IDIQs, mid-tier companies must surmount major challenges:
- Mid-tiers are often locked out of large multiple award IDIQs owing to significant past performance criteria.
- The tendency of DoD agencies to consolidate contracts to reduce administrative burdens and costs, which favors large businesses. Such IDIQ consolidation reduces opportunities for mid-tier companies to penetrate and support customer agencies, which constrains future growth. Consolidation also poses risk to growth owing to long period of performance of awarded IDIQs; mid-tier companies often have to wait a decade before they can compete again as an IDIQ prime if they miss out on the near-term opportunity.
- Third, mid-tier companies must contend with ever rising costs that increase their indirect rates and make it more difficult to compete against large businesses. These cost increases are the result of several factors, chief among them are supporting employee benefits under newly enacted national healthcare polices, responding to current and emerging cyber security requirements, maintaining sophisticated auditable financial systems, and obtaining certifications and appraisals, such as ISO-9001:2008/20015, ISO 20000, ISO 27001 and CMMI-3/4, which DoD agencies increasingly require of companies seeking to pursue and perform work.
- Fourth, while mid-tier companies are capable of providing the same or better level of service and customer relations as large businesses, their competiveness is hampered by higher overhead costs relative to large businesses because they lack the scale to absorb those indirect costs. These higher costs, combined with the lowest price technically acceptable and low price competition environment we are experiencing in the defense sector, hinder mid-tier companies in achieving success as they compete against large business on full and open competitions.
- Fifth, North American Industry Classification System (NAICS) codes used to classify DoD work and define company size standards offer little support for mid-tier companies. While some NAICS codes, such as 541712/5, Research and Development, reflect a size standard of 1000 employees, up from 500 employees in Feb 2016, DoD agency contracting officials tend to strictly interpret the type of work performed and the size standard offers little benefit to mid-tier companies. Hence, there are no contracting tools to benefit or promote mid-tier company growth.
- Sixth, graduating small businesses confront major challenges as they evolve into mid-tier companies and must compete as newly minted large businesses. While seeking a merger or acquisition may represent a potential exit strategy, in many cases, successful small businesses owe their growth to small business contract awards, which are of little value to large business acquirers. Hence, the businesses are at great risk of failing shortly after graduating from small business status: they are too big to be small and too small to be effective as large businesses. While the Congress and DoD have done an excellent job in establishing policies that promote small business growth, particularly for socio-economic challenged groups, they have failed to establish an effective strategy to promote business health and growth across the total business life cycle, from start-up/small business through mid-tier to large business.
- Seventh, and my final point, small business officials in DoD agencies generally sympathize with the challenges mid-tier companies confront, however they state they can do little to help without congressional and/or department involvement and legislation. Their focus is on accomplishing their duties by promoting the various small business classifications.
The US lacks a strategic approach to promoting growth of US businesses supporting the DoD. The current government programs that promote the interests of small businesses fail to account for their eventual growth into being mid-tier companies. At that point, such companies must compete against small businesses, other mid-tier companies, and very large companies. This poses great challenges to rising small businesses. I believe Congress and DoD should seek avenues to promote the lifecycle growth of companies by accounting for those mid-tier company challenges.
Randy J. (“RJ”) Kolton is VP of Mid-Tier Advocacy Group, and Senior Vice President (SVP), Business Development for Data Systems Analysts (DSA), Inc., a mid-sized, employee-owned company that is a leader in delivering business driven information technology and consulting solutions and services to the Federal Government and industry. Building on experience spanning more than five decades, DSA has deep expertise and comprehensive understanding of the operational, security, collaboration, and identity management challenges our customers must address.
We’ve been discussing the Office of Management and Budget (OMB)’s six proposals for streamlining the acquisition process and improving the acquisition environment, intended to be included in the FY 2020 National Defense Authorization Act (NDAA).
Proposal 3 is about uniformity in procurement thresholds. So right now purchases starting at $2 million must adhere to cost accounting standards (CAS), but complete coverage doesn’t start until you’re at $50 million. This change will eliminate these wide differences by raising the basic threshold to $15 million.
That means you will only need to start paying attention to CAS at $15 million, and full coverage still starts at $50 million. The reason for this change is that there were already some exemptions established at various other threshold levels that caused confusion about when the basic CAS really apply.
The reason this is important for us as small businesses is that full CAS coverage is very comprehensive and has a lot of details, and it’s really hard for a small business to manage this. That’s why you don’t hit full CAS coverage until $50 million. At that point you presumably have the infrastructure in place to handle the extra requirements.
One other legalistic thing being done is that they’re decoupling the CAS thresholds from the similar thresholds in what’s called the TINA (Truth in Negotiations Act), because there’s some concern that by putting them together, issues and problems come up in both.
Gosh, it seems like yesterday that the Mid-Tier Advocacy group held their Business Focused Breakfast around the legislative update with some regulatory issues thrown in (but it’s already almost time for the next one).
Our speaker on July 30th was Pam Mazza of Piliero Mazza – true experts in this legal and regulatory thicket we all have to plow through as GovCons…
We talked about the new Small Business Runway Extension Act, passed in December 2018. It turns out that the legislation had some flaws in it, so instead of new regulations flying for the 5-year average replacing the old 3-year average, they’re working on some adjustments.
It was somewhat over my head, to be sure, but it hinges on whether SBA was actually authorized, and Administrator vs. Administration. OK, I’m not kidding. However, it did pass bi-partisanly, so these changes should get made fairly quickly. Of course some places are implementing it, and I can hear the protests rumbling. My advice is to ask the question, do not assume.
Second was the SBA’s preliminary rule on inflationary adjustments to the size standards. By the way, a 10% rise from 27.5 million is going to 30 million, not to 30.25 million, because I guess bureaucrats like round numbers. These adjustments will take effect in August, but then you’ll have to be sure SAM Reps and Certs catches up, so things might take a while for these changes to actually change your size status. FYI, this is NOT the “re-evaluation” of Sector 54 and 236 still to come, someday…
There’s a bipartisan bill circulating to extend 8a sole sourcing to SDVOSB, HubZone, and WOSB/EDWOSB, and to raise the thresholds – these have not been adjusted in decades. The thicket of rule-of-2 rules and regulations for non-8a sole sourcing has got to be made easier, so we’ll see if this gains traction.
DoD issued a class deviation letter, allowing similarly situated entities on all DoD contracts.
DoD also issued a letter limiting LPTA contract evaluation types, but beware of “fake best value” where they have fewer factors and call it best value when price is really the issue.
Finally, SBA is looking at working some early termination graduation for 8a’s – more will be revealed.
And that’s the news report… These breakfasts are often a good place to hear and discuss the real issues, so if you can, attend them in your area wherever that may be. The next Mid-Tier Advocacy Business Focused Breakfast is on Tuesday, August 27th at the Tower Club in Vienna, VA, featuring SBA Associate Administrator Mr. Robb Wong. Learn more and get your tickets now.