gain access to working capital government contractors · 2020-07-03 · kirk. w. mclaren, mba, cpa,...
TRANSCRIPT
Government ContractorsGain Access to Working CapitalAt Favorable Terms
Copyright. All rights reserved.
We Help CEOs
Win More CustomersKeep the Customers they HaveHave the People Capacity to Delivery QualityAccess to Capital at Favorable TermsAchieve Top Percentile Financial Performance
We Do this ThroughGrowth CFO and Accounting Services
Kirk. W. McLaren, MBA, CPA, IFMChief Executive Officer
Georgetown University [email protected]
202.262.1231
Copyright. All rights reserved.
Ryan HussDirector of Operations
703.582.7371
Parabilis helps government contractors
Gain access to affordable, transparent and flexible capital to support their contracts
We Do This ThroughLines of Credit Designed to meet the Changing Needs of Government Contractors
Copyright. All rights reserved.
Let’s Figure Out Who is In the RoomPoll Question
What was your topline revenue in the prior year?
This year with COVID, what do you expect your revenue to be?
What is Working Capital?
$1,875,000Current Assets
$1,700,000Current Liabilities
$175,000Working Capital
Cash A/R
Payroll Overhead Expenses
Other Current Liabilities
Cash Short-Term Debt
Inventory
Inventory
Taxes
LESS:
=
Or...how well can you use your Cash and Expected Invoice Payments (A/R) to pay your Payroll and Operating Expenses on time?
Why You Need It to Scale Your Business
1 15 30 45 60DAYS
INCOME Unbilled Labor Hours Billed Labor Hours
Invoice the Customer
Payroll 1 Payroll 2 Payroll 1 Payroll 2EXPENSES
Paid by Customer
OPEX OPEX
How will you pay these expenses before receiving payment from the government?
Impact to My Balance Sheet
Current AssetsAccounts Receivable
Cash
Current Liabilities Operating Expenses
Payroll
Working Capital
$650,000
$25,000
$1,000,000
$175,000
$200,000
$1,025,000
$850,000Other Current Liabilities $0
$650,000
$875,000$1,000,000
$175,000
$200,000
$1,875,000
$1,700,000$850,000
After working capital funding
Before working capital funding
Impact to My Income Statement
Revenue
COGS
Net Income $65,000+
Financing Interest/Fees
$1,000,000$1,000,000
OpEx
$1,000,000
Bank Financing Parabilis Financing Invoice Factoring
$800,000 $800,000 $800,000
$125,000 $125,000 $125,000
$10,000 or less $10,000 - $15,000 $25,000+
$60,000+ <$50,000
Choose Wisely...
$$$$$$
MCA
$1,000,000
$800,000
$125,000
$50,000+
$$$$
<$25,000
Funding Solutions
Cost as a % of Annual Revenue
1%.5% 2% 3% 4% 5% 6% 7%
Factoring
Bank Line of Credit
Merchant Cash Advances
Parabilis Line of Credit
Qua
lific
atio
n Re
quire
men
ts
Borrowing Against AR
Borrowing Against AR, Unbilled and Delivery Orders
Selling Invoices
Borrowing Against Future Revenue
8%+
Using a Bank Line of Credit for Working Capital
Product Revolving Line of Credit Able to borrow 80-90% of AR via monthly borrowing base
Cost Low 3-8% APR
Access to Capital Moderate Based solely on AR less than 90 days old
Ability to Qualify Difficult
High standards few small contractors will meet: ▪ 2-3 years in business▪ History of profitability▪ Able to meet certain ratios.
Speed of Approval Slow 1-3 Months
Line Increases Difficult Typically not until the end of the year. Not based on contract award.
Flexibility Low▪ Loan agreement will include ratio-based covenants. ▪ Limited flexibility if issues arise, ratios tripped, payment delays, T for C,
etc.
Using a Bank Line of Credit for Working Capital
Product Revolving Line of Credit Able to borrow 80-90% of AR via monthly borrowing base
Cost Low 3-8% APR
Access to Capital Moderate Based solely on AR less than 90 days old
Ability to Qualify Difficult
High standards few small contractors will meet: ▪ 2-3 years in business▪ History of profitability▪ Able to meet certain ratios.
Speed of Approval Slow 1-3 Months
Line Increases Difficult Typically not until the end of the year. Not based on contract award.
Flexibility Low▪ Loan agreement will include ratio-based covenants. ▪ Limited flexibility if issues arise, ratios tripped, payment delays, T for C,
etc.
Using Factoring for Working Capital
Product AR Purchasing Facility Sell 80-85% of sub-contract and 85%-90% of prime-contract invoices
Cost High 20-30%+ APR, costs are variable
Access to Capital Moderate▪ Invoices must be “approved” in WAWF before being purchased and
only after an assignment is in place. ▪ May elect not to purchase Sub-Contract invoices.
Ability to Qualify Easy Based on the quality of receivables, not as much on your company.
Speed of Approval Moderate 2-4 weeks
Line Increases Moderate Based on AR. New contracts must be assigned before you can sell.
Flexibility None▪ Must sell entire invoice. ▪ If payments are delayed it will result in more fees or cause the Factor
to stop buying invoices which would halt working capital funding.
Using Factoring for Working Capital
Product AR Purchasing Facility Sell 80-85% of sub-contract and 85%-90% of prime-contract invoices
Cost High 20-30%+ APR, costs are variable
Access to Capital Moderate▪ Invoices must be “approved” in WAWF before being purchased and
only after an assignment is in place. ▪ May elect not to purchase Sub-Contract invoices.
Ability to Qualify Easy Based on the quality of receivables, not as much on your company.
Speed of Approval Moderate 2-4 weeks
Line Increases Moderate Based on AR. New contracts must be assigned before you can sell.
Flexibility None▪ Must sell entire invoice. ▪ If payments are delayed it will result in more fees or cause the Factor
to stop buying invoices which would halt working capital funding.
Using Merchant Cash Advances for Working Capital
Product Cash Advance Selling a portion of your future revenue.
Cost Very High 40%-250%+ APR
Access to Capital Low Will only provide a small portion (e.g., one month) of future revenue.
Ability to Qualify Easy ▪ Current bank statements. ▪ Based on future projections.
Speed of Approval Easy Same-day approval.
Line Increases Easy If you need more, sell more revenue.
Flexibility None ▪ Daily or weekly payment schedules. ▪ Pulled directly from your bank account until the loan is paid.
Using a Parabilis Line of Credit for Working Capital
Product Revolving Line of Credit
Borrow 85-90% of AR, 50-65% of unbilled but earned, and 30% of delivery orders via daily borrowing base
Cost Moderate 8%-15% APR
Access to Capital High
Able to pull maximum cash forward to fund:▪ Contract startup costs▪ Headcount increases▪ Payments to suppliers.
Ability to Qualify Likely ▪ Based heavily on the leadership and contracts in hand.▪ There are no automatic rejection criteria.
Speed of Approval Moderate Typically within 2 weeks
Line Increases Easy Based on client’s needs. Can be increased within a week.
Flexibility High▪ Not federally regulated. Agreement does not include onerous,
ratio-based covenants allowing flexibility to help when issues arise. ▪ We don’t “work-out” clients, we help them succeed.
Working Capital Solution Comparison
Bank Line of Credit
Parabilis Line of Credit Factoring Merchant Cash
Advance
Product Asset Based Line of Credit
Asset Based Line of Credit
AR Purchasing Facility Cash Advance
Cost 3-8% APR 8%-15% APR 20-30%+ APR 40%-250%+ APR
Access to Capital Moderate High Moderate Low
Ability to Qualify Difficult Likely Easy Easy
Speed of Approval Slow Moderate Moderate Easy
Lines Increases Difficult Easy Moderate Easy
Flexibility Low High None None
But Isn’t Debt Bad for My Business?Consider this;
If you were to take on debt to support a new opportunity that will generate $1M in revenue and $50K in profit over the next year and your cost of debt is $10,000 (or 1% of revenue), your return on investment (ROI) would be 400%.
$1,000,000 Opportunity
$1,000,000Revenue
$50,000Profit (EBITDA)
$950,000 in total expenses
Line of CreditCost = $10,000 (1% of Revenue)
$40,000Net Income
after line of credit interest and fees
“Parabilis was founded to support the specific financing needs of government contractors.”
~ Dr. Edward BersoffChairman and Founder
Parabilis
Why Parabilis?
Copyright. All rights reserved.
Copyright. All rights reserved.
Determine How Much Working Capital You NeedDevelop a Weekly or Monthly Model
Copyright. All rights reserved.
Make Sure that You Have Good Numbers
Copyright. All rights reserved.
Habit 5: Get Your First Look Loan ScoreIs Your Balance Sheet Strong?
Copyright. All rights reserved.
Don’t ask your Accountant to Calculate Your Loan ScoreGrowth CFO AccountantTax Preparer
The Right Growth Options
Manage Cash Well
Create Your Financial Roadmap
Increases Revenue, Profit,and Maximize Valuation
Forward Looking Growth Guide
Make Sure that You HaveGood Numbers
Day to Day Transactionsand Processes
Prepares Financial Reports and Reconciles Accounts
Historical Looking
Prepares Federal and StateTax Returns
Quarterly Payments
Compliance
Copyright. All rights reserved.
We Help CEOs
Win More CustomersKeep the Customers they HaveHave the People Capacity to Delivery QualityAccess to Capital at Favorable TermsAchieve Top Percentile Financial Performance
We Do this ThroughGrowth CFO and Accounting Services
Plan, implement, and calibrate With the Numbers!
Copyright. All rights reserved.
Our Growth CFO Team Beats Full-Time CFOs Everytime
People➢ 234 Years of Experience➢ 2 Person Teams➢ Capacity to Surge
Expertise➢ Growth Guide➢ IFM Certified➢ Technology Enabled
Impact➢ Focused on Priorities➢ Deliver in 90-Day Sprints➢ Measurable Impact
Copyright. All rights reserved.
Growth CFOs Deliver Measurable Impact
Copyright. All rights reserved.
Kirk. W. McLaren, MBA, CPA, IFMChief Executive Officer
Georgetown University [email protected]
202.262.1231
ClarityConfidence
Impact
Impacting CEOs GloballyDC - NYC - Chicago - Maryland - Virginia - Connecticut -
Florida - Pune - New Zealand - Australia
When You Need to Figure Out Access to Working Capital Email Me to Schedule a 25-Minute Collaboration
Copyright. All rights reserved.
Ryan HussDirector of [email protected]
703-582-7371
When You Need the Capital to Support Your ContractsEmail Me to Schedule a 25-Minute Collaboration