Every business needs a detailed budget, but government contractors have some unique challenges they face, such as creating a budget for different types of costs and using this financial data to make bids that are low enough to win a contract and high enough to allow for an interesting profit margin. Forecasting is another activity that needs to become a priority so that you can keep identifying future opportunities and keep growing your business.
These best practices will help with budgeting:
- Start by assessing the volume of business you will do in the upcoming year, based on contracts you have already won and opportunities you plan on going after.
- Estimate your direct costs. Use past accounting records to estimate these costs as accurately as possible.
- Estimate your indirect costs and organize them in different categories.
- Compare your budget for the upcoming year with budgets from previous years. If there are real discrepancies, consider reviewing your budget for the upcoming year.
- Be conservative when calculating costs and do not hesitate to create more than one budget in function of different scenarios, especially if you are still bidding on some contracts for the upcoming year.
- Always use the same format when creating a budget so that you can easily compare your estimates.
- Go over your budget regularly and compare it with actual costs. Make adjustments as needed.
Forecasting is about identifying new opportunities for your business. Here are some best practices for forecasting:
- Schedule some time to look for new contracting opportunities, for instance on a weekly basis and identify the best resources you can use to keep track of new opportunities.
- Develop a process to filter contracting opportunities that makes sense for your business.
- Gather data on bids you have placed in the past, even if you didn’t win the contract. Use this information to improve the techniques you use to filter opportunities.
- Put together a detailed step by step process you need to follow to prepare a proposition while respecting deadlines.
The best practices you follow for forecasting also need to be adapted to the way the government agencies you work with do things. Some agencies have shorter deadlines while others usually share information about upcoming contracting opportunities months in advance.
It’s best to think about adopting these best practices for budgeting and forecasting and look at ways to improve them in function of the unique needs of your industry and of the government agencies you provide services to.
Ultimately, you should be able to effectively measure and manage the impact of planned changes to new and existing work. Such as:
- Forecast cost, billing and revenue for all project types (fixed price, cost reimbursable and time and materials)
- Look at Contract, Contract Line Item Number (CLIN) and task order profit and loss, including project status reports with full drilldown
- Indirect rate management (unlimited pools, bases and rates), including rate adjustments and impact
- Ability to point to alternative indirect rate sets to access cost impacts of changes in rate structures
- Consolidate actual and forecasted cost-to-complete data to support the estimate at completion (EAC) process
- Project funding burn rate reporting
And within the area of resource/utilization planning you should be able to:
- Optimize resource utilization and capacity planning by project, customer or department
- Identify gaps, bottlenecks and resource constraints in real time
- Prepare ‘what if’ scenario planning to simulate and observe the impact of strategic changes on resource profile
With the right ERP system, you can manage your budgeting and forecasting within one solution. An application like JAMIS Prime ERP can do just that and more. Take a look at our Prime ERP Sofware HERE for more information. Or contact us at email@example.com to find out how the accounting solution we developed for government contractors can help you manage these processes.