Securing state contracts can be a game-changer for small and mid-sized businesses. These opportunities not only provide consistent revenue but also open the door to long-term growth and credibility. However, before diving in, it’s essential to have a strong financial strategy in place. Many great businesses miss out on contracts not because of poor offerings—but due to weak financial planning. Here are two smart financial strategies to help you succeed and two important considerations to keep in mind.

Tip #1: Build a Strong Working Capital Position

State contracts often require upfront investments—whether it’s staffing, supplies, or equipment—before any payments are made. Many state agencies operate on net-30, net-60, or even net-90 payment terms. This means your business needs to be financially prepared to cover expenses while waiting to get paid.

Strategy: Create a cash flow forecast that includes the expected contract timelines, and ensure your business has enough working capital or access to a line of credit. Work with your accountant or bookkeeper to review your burn rate and determine how long your business can operate without reimbursement.

Tip #2: Know Your Indirect Cost Rate

When pricing a bid, many small businesses focus only on direct costs and overlook indirect costs—expenses like rent, utilities, administrative salaries, and insurance that support contract fulfillment. Accounting for these properly will protect your profit margin.

Strategy: Calculate your indirect cost rate in advance and include it in your proposal. Having a clear understanding of your fully burdened cost structure ensures you’re not underbidding. It also shows the state agency you understand the full scope of your operations and can sustain service delivery.

Important Consideration #1: Strategic Pricing for Success

While competitive pricing is important, submitting appropriately valued bids leads to better outcomes. Strategic pricing ensures financial stability, enables proper contract fulfillment, and maintains high-quality service delivery—all of which enhance your reputation and future opportunities.

Important Consideration #2: Embracing Compliance as an Investment

Compliance requirements including reporting, audits, payroll standards, and insurance are valuable aspects of doing business with the government. Viewing these as investments rather than obstacles positions you for success.

Make sure you’ve reviewed all the financial implications of compliance—including systems, staffing, and legal costs—before submitting your proposal.

Action Plan for Financial Readiness

1. Conduct a 3-month cash flow analysis to assess your financial runway.
2. Set up a meeting with your CPA or financial advisor to review indirect costs and how to properly allocate them.
3. Apply for a business line of credit or short-term loan, even if you don’t need it right now, so you’re prepared if awarded a contract.
4. Take a compliance inventory—list out all financial reporting, insurance, payroll, and audit requirements that may be involved in the contracts you’re pursuing.
5. Create a pricing model template that includes both direct and indirect costs, with a built-in margin that aligns with your profit goals.

Getting financially ready to work with the government isn’t just about managing costs—it’s about positioning your business as a reliable, sustainable partner. With the right strategy, your business can grow confidently in the state contracting space.