Diversification is a strategy where companies expand a particular area of their business such as developing a similar market for a different base of clients. There is additional work, however, with the addition of an additional stream of income. This can vary from the simple act of registering in a prime contractor’s subcontracting system to more complex activities such as redesigning marketing materials. Diversifying your business can offer you many benefits including having contracts and cash flow in one area when another area is closing or low on funding. Some of the benefits of diversifying your business include:

• Spreading your investments across markets such as the public sector (governments) and the private sector (prime contractors), can help protect your business against market downturns, funding issues, or other external factors that could impact your current operations.
• You can attract more customers without setting up another business, adding a multitude of resources or dramatically restructuring your current business.
• You will have more markets to rely on which will assist with minimizing risk and creating a more secure future.
• By diversifying what and where you offer, it’s easier for businesses to balance their sales. This can make your business more resilient to fluctuating demands and agile.
• Companies continually encounter uncertainty and risk due to the ever-evolving global marketplace. It is imperative for companies to develop strategies that protect their interests and promote their growth and prosperity.
• Diversification of your business is a strategic tool to thrive and survive during uncertain times.

Diversification is one valuable tool to use to protect your business during the changing times we are facing. It’s an opportunity to build another source of income to offset the yearly challenges with potential federal government shutdowns. Let’s take a minute and look at how a Federal Government shutdown can impact your business.

A Federal Government Shutdown only affects federal government agencies. It does not include state government agencies or local government agencies. Congress and the President can perform 1 of 3 actions by September 30 each year:

1. Pass an annual appropriation bill to fund the Government.
2. Pass a Continuing Resolution Act (CRA) to provide some funds for a period until they agree upon an appropriation bill.
3. Shut down the Government because they cannot agree on the next annual budget.

There have been 21 federal government shutdowns in the last 5 decades with the most recent in Dec 2018 – Jan 2019 (34 days), but what does a government shut down mean for government contractors?

Currently, we are in a situation where a Continuing Resolution is going to expire on March 14. While Congress continues to work on a solution that is agreeable on how to handle funding for fiscal year 2025, there is a possibility that an agreement may not be reached prior to the March 14^th deadline.

* Although this article discusses the impacts of a Federal Government Shutdown, it contains basic business information when working with the government that is appropriate and helpful in multiple situations. And even if a shutdown does not happen this year, it’s important to know this is a factor that can occur in the future and to plan in case it happens.  

Who is Impacted?

The federal government civil service civilian employees, the military, and the contractors who have federal government contracts are all impacted. Contractors are impacted because whether they are required to work or to stop work – they will not be paid during a shutdown. This is because the federal workers who receive the invoices and process payments are not at work during this period. A government shutdown has ripple effects that impact everyone in the community. 

How will this affect your business?

Contractors will receive written direction from their agency’s Contracting Officer or Contracting Officer Representative on how to proceed with any action on their contract. They may receive a Stop Work Notice directing them not to report to work or they may receive notice that they will need to be working because they have been deemed to be essential to the government. Regardless, the contractors will not be paid. 

Every contractor should watch for written direction from their Contracting Officer and ask questions immediately as government personnel may not be available after the shutdown starts. Pull out your contract and read it! You may also have to provide notification to your subcontractors as the government does not communicate with them. 

This is a crucial time to review your business planning and consider not having all your business with one client or one type of client. Think about diversification that includes multiple types of government contracting so that if one client is shut down you have others providing cash flow. And when a shutdown ends, the relief is not immediate as it takes time for the government to catch up and reach normal processing timeframes again.

Document, Document, Document!

It is important to document your costs during the shutdown. You may be required to continue work without payment during the shutdown, minimize work with no payment, or stop work completely. You will need to prepare a request for equitable adjustment after the government reopens. 

Your employees may not be able to continue working for you without a paycheck so consequently you may lose some of your best people. These are the types of actions that should be documented, including all costs to recruit new employees, training, etc. If you find yourself in this situation, your APEX Counselor will be able to navigate what to do and assist you.

Steps for preparedness

Act early by completing these to-do items:

1. Review your existing contracts with federal agencies to understand your obligations, particularly regarding any shutdown clauses. Determine how critical each contract is to your business operations.
2. Communicate with your contracting officers and point of contact within the relevant federal agencies. Seek clarification on the impact of a potential shutdown on your specific contracts, including any guidance on how to proceed.
3. Be sure your business has adequate financial reserves to weather a potential shutdown. This may involve setting aside funds, securing lines of credit, or exploring financial assistance options.
4. Will a shutdown impact your supply chain? Identify critical suppliers and work with them to develop contingency plans in case of delays or disruptions.
5. Consider the impact on your workforce. Determine which employees are essential for contract performance and which can be furloughed or assigned to other tasks during a shutdown.
6. Maintain thorough records of all communication with government agencies, including emails, letters, and phone calls. Document any changes in contract terms, instructions, or directives provided by government representatives.
7. Create a comprehensive shutdown plan that outlines the steps you will take if a shutdown occurs. Include details about how you will prioritize contracts, manage finances, and communicate with employees and subcontractors.
8. Over the long term, consider diversifying your client base to reduce reliance on federal contracts. This can help stabilize your revenue during periods of fluctuation.
9. If the Federal Government sends you notice to terminate one of your contracts for convenience for the government, contact us immediately for assistance.

---

Your APEX Counselors are here to help – we can assist with planning for the future or guiding you if a shutdown occurs. Reach out to your Norcal APEX Accelerator counselor for assistance or apply for services today!

---

Authored by: Mary Jo Juarez, Norcal APEX Accelerator Procurement Specialist