July 25, 2023
By Steve Lyons, CPA, Senior Manager
For small businesses operating as 8(a) government contractors, adhering to the Small Business Administration’s (SBA) requirements is imperitive. Among these requirements, timely delivery of financial statements holds significant importance. It serves as a cornerstone for effective financial management, regulatory compliance, and long-term business success.
The 8(a) program is a nine-year program designed to aid economically disabled businesses. One of the key requirements to maintain eligibility is the submission of financial statements. Participants with annual gross receipts of more than $10,000,000 are required to have an audit, and those with gross annual receipts between $2,000,000 and $10,000,000 are required to have a financial statement review. Participants with gross receipts less than $2,000,000 must have compilation or provide financial statements from their internal accounting system.
In this blog post, we will explore the reasons why timely delivery of financial statements is crucial for 8(a) government contractors.
Compliance with SBA Regulations
The SBA has established clear guidelines for 8(a) government contractors regarding the submission of financial statements. To ensure compliance, the SBA requires the submission of the financial statements within 90 to 120 days of the company’s fiscal year end. Timely submission of financial statements plays a crucial role in showcasing a small business’s reliability and professionalism. Consequently, government agencies heavily rely on these accurate financial records to evaluate a contractor’s financial stability and assess their ability to deliver on contracts.
Financial Health and Performance
Timely submission of financial statements provides valuable insights into the company’s health and performance immediately after their accounting year end has concluded. This allows companies to identify potential risks, address any financial issues promptly, and take corrective measures (if necessary). Additionally, prompt delivery of financial statements enables 8(a) government contractors to spot any irregularities or discrepancies quickly. Timely review and analysis of financial statements can also help identify potential fraud, embezzlement, or errors in financial reporting. Early detection allows businesses to take immediate action to rectify the situation, safeguarding their reputation and preventing further financial damage.
Financing Opportunities
Access to financing opportunities as well as satisfaction of loan covenants often require timely delivery of financial statements. In particular, financial institutions may demand the preparation of financial statements by Certified Public Accountants (CPAs) as part of the process to secure external financing. Furthermore, a contractor’s existing financing covenants may stipulate the submission of financial statements within 90 to 120 days after the company’s year-end. Meeting these deadlines is essential for demonstrating the contractor’s financial stability and adherence to contractual obligations, ultimately enhancing their credibility and standing in the eyes of lenders and creditors.
Prospective Awards
8(a) government contractors are constantly submitting proposals for prospective new awards, and financial statements are generally a required component of the proposal. Ensuring the timely preparation of these financial statements is crucial for the smooth submission of proposals throughout the year. When there are delays in the preparation of financial statements, it can result in unexpected requests for immediate delivery to fulfill the requirements for a prospective award or contract. Consequently, a “rush” request is made to the respective government contractor’s CPA to expedite the completion of the financial statements, all in a race against the proposal deadline. However, it’s important to note that the preparation of these financial statements can typically take 30 days or more for delivery. Given the abbreviated time frame (less than 30 days) often required by government contractors to meet the proposal deadline, this can create added pressure and challenges in meeting the submission requirements promptly.
Conclusion
Timely delivery of financial statements is essential for the success of 8(a) government contractors. By adhering to the SBA’s regulations and submitting accurate and up-to-date financial statements, small businesses demonstrate their commitment to compliance, build trust with government agencies, and enable effective decision-making. Additionally, timely financial reporting helps identify financial health, access financing opportunities, and detect irregularities. Embracing the importance of timely financial statements sets the stage for long-term growth and success as an 8(a)-government contractor.
Recommendations to ensure timely delivery of financial statements:
- Submit the required financial statements within the 90 to 120 days after the close of the year.
- If an extension is required, schedule a meeting with your CPA to determine a delivery date as soon as possible after the 90 to 120 days. (This should be a priority for the first bullet point too).
Satisfying your SBA requirements with timely delivery of financial statements also provides the necessary readiness for your proposal submissions and compliance with internal and external financial reporting. Contact a CPA that specializes in assisting 8(a) government contractors to discuss options and timing for meeting your SBA financial statement requirements.
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