Ten Things a GovCon Company Must Do to Maximize Enterprise Value

At a $20M EBITDA GovCon company transacting at 9x, the difference between a well-prepared seller and a poorly prepared one is not a rounding error. It is $40M, typically lost between LOI and closing to re-trades that a prepared seller never faces. The working capital peg. The EBITDA bridge. Open ICS years that become escrow holdbacks. Compliance gaps that expand indemnification scope. Overhead charged to a contract structures that a buyer's a quality of earnings team cannot validate and therefore will not underwrite at face value.

None of these are inevitable. They are all preventable with time and the right sequence of work. What follows is the specific list, ten things that materially move the enterprise value dial in a GovCon transaction, in the order they should be addressed.

1. Convert to full accrual accounting GAAP, and restate three years

Cash-basis books are rejected on day one of GovCon diligence. This is not a preference. It is a gate. A buyer's QoE team cannot underwrite an EBITDA they cannot verify, and cash-basis books make revenue, WIP, and unbilled receivables invisible.

For GovCon companies, the conversion is more complex than for commercial businesses because of the interaction between contract billing, WIP, unbilled receivables, and DCAA compliance. Cost-plus contracts create earned revenue that has not yet been billed. Time-and-materials contracts create unbilled hours that represent real economic value. A cash-basis book systematically understates both.

The restatement covers three years, not one, not two. Buyers model trends, and a single restated year raises questions about what prior years would show. Three years of GAAP-compliant financials with a consistent methodology creates the track record that supports the normalized EBITDA a banker will present. Start this 18 months before a planned process. Done under diligence pressure, it produces exactly the finding that gives buyers a re-trade lever.

2. Get the DCAA accounting system to SF1408 standard

A DCAA-adequate accounting system is table stakes for cost-reimbursable work, and a direct signal of operating discipline that PE buyers price into the multiple. The SF1408 pre-award survey is DCAA's formal evaluation mechanism. A system that cannot pass one is a liability in any GovCon transaction.

The practical standard: the system must segregate direct, indirect. Unallowable costs at the transaction level, run on a DCAA-recognized platform (Costpoint, unanet, JAMIS, not QuickBooks or standard Sage), and be configured for GovCon compliance.

Founders who have managed DCAA relationships for years without a formal pre-award survey frequently underestimate this gap. A history of no adverse audit findings is not the same as a demonstrably compliant system. A buyer's QoE team will test the system configuration, not just read the audit history. Platform migration from a non-compliant system takes six to twelve months minimum. This work starts early or it becomes a transaction problem.

3. Document the indirect rates structure, pools, bases, unallowables

Overhead charged to a contract structure is the most common source of purchase price re-trades in GovCon M&A. Not because the rates are wrong, but because the structure behind them (the pool definitions, the allocation bases, the unallowable cost exclusions) exists in practice but not on paper.

What needs to exist: written definitions for fringe, overhead. G&A pools. Documented allocation base rationale that references FAR 31.203. A FAR 31.205 unallowable cost policy with evidence of systematic application. And three years of provisional-to-actual rate reconciliations. When a buyer's QoE team asks for this documentation and the CFO produces a spreadsheet built during diligence, the buyer prices the uncertainty. The documentation writing exercise itself usually surfaces inconsistencies that can be corrected before they become findings.

4. File all outstanding ICS submissions

Incurred cost submissions are the annual final cost reports that cost-reimbursable contractors must file with DCAA within six months of fiscal year end. Each outstanding year is a discrete liability. Buyers model the exposure, escrow against it, or, in cases of significant delinquency, walk.

The ICS filing itself is not complex. It is the pattern of non-filing that creates the problem, because it raises questions about what the filed years would show. File current. File prior years if delinquent. Engage with DCAA on any years selected for audit and document the status. An open audit is a manageable risk if it is documented and progressing. An open audit that has been ignored is a deal condition.

The escrow math: typical holdbacks run 1-2% of total contract revenue per open ICS year. On a $50M revenue company, that is $500K to $1M per year. Multiplied across three or four outstanding years, it becomes a material purchase price adjustment that a filing would have prevented.

5. Build and defend the EBITDA bridge

The EBITDA bridge is the documented reconciliation from reported GAAP EBITDA to the normalized EBITDA a banker presents to buyers. Every add-backs (owner compensation, one-time costs, M&A expenses, non-recurring items) requires source documentation that a sophisticated buyer's QoE team will verify independently.

Every dollar of EBITDA that cannot be defended in the bridge is worth the transaction multiple in enterprise value. At 9x, a $1M undocumented add-backs costs $9M in proceeds. An undocumented owner compensation add-backs gets discounted. A one-time expense without supporting documentation gets rejected. A normalized EBITDA that a banker cannot defend gets haircut by the buyer's model.

Build the bridge 12 months before banker engagement. Run it every month. By the time the process begins, the bridge has a track record. Each add-backs has been applied consistently and can be explained by the CFO without hesitation in a management presentation.

6. Establish a defensible baseline for cash left in the business

The net working capital peg is the single most re-traded number between LOI and closing in any M&A transaction. In GovCon, it is more complex than commercial because of the unbilled receivable cycle, cost-plus contracts create a lag between cost incurrence, billing. Collection that commercial buyers frequently misunderstand and GovCon buyers exploit.

What a defensible baseline for cash left in the business requires. DSO tracked monthly by customer and channel with root-cause analysis for aging. Unbilled receivables reconciled monthly with a documented conversion cycle. AP and accrued payroll mapped and seasonality-adjusted. And a rolling 12-month normalized working capital that a banker can present to a buyer as the peg target with confidence.

The working capital peg is where the most sophisticated buyers apply the most pressure. A company that arrives at LOI without a prepared working capital analysis is negotiating from the buyer's model. The buyer's model will not be generous.

7. Map the contract portfolio and novation requirements

Government contracts do not transfer automatically under a change of ownership. They require novation under FAR 42.12, a formal agreement between the buyer, seller, and contracting agency that recognizes the change of ownership and authorizes continued performance. Novation timelines vary by agency and can run from 60 days to over a year.

The work that maximizes value here: map every contract to its novation requirement, identify the contracting officer for each vehicle, assess the agency's historical novation timeline. Begin informal engagement before the process launches. A buyer who receives a novation readiness plan with agency contacts and documented timelines is underwriting a process. A buyer who has to model novation risk from first principles is underwriting uncertainty, and pricing it accordingly.

Also: concentration. No single contract or customer above 25% of trailing revenue as a target. If concentration exists, have the recompete strategy and pipeline diversification narrative ready. A buyer will model the concentration risk; the seller should model it first.

8. Fix timekeeping, before diligence finds it

Timekeeping is the single most-audited element in GovCon compliance and one of the easiest places for a buyer to find False Claims Act exposure. a FCA finding in diligence does not just adjust price. It can kill the deal entirely, because no acquirer will close with unresolved FCA exposure.

The standard: all employees enter time daily in an electronic system (no batch entry), charges are to the correct project, task. CLIN with supervisor approval documented. The system maintains a complete correction audit trail with reason codes. Test against DCAA's ICR 3.100 and 3.300 criteria. Every gap identified internally is one that does not surface in diligence. The remediation cost is minimal. The cost of finding it during the process is not.

9. Build the compliance infrastructure, written policies, evidence of operation

FAR Part 31, DFARS, CAS standards, CMMC 2.0, NIST 800-171, and Section 889 obligations all need two things: documented policies and evidence that the policies are actually followed. The documentation without the evidence is a compliance program on paper. The evidence without the documentation raises questions about what the program covers.

CMMC 2.0 is increasingly a transaction condition for DoD contractors, not just an operational requirement. A company that cannot produce a current NIST 800-171 self-assessment with a plan of action and milestones is carrying contract risk that sophisticated defense-sector buyers will price. Section 889 representations that have been signed on contracts without a documented review process are a similar exposure. The certification was made, but the evidence of compliance is absent.

Compliance gaps become reps and warranties exposure post-close. Buyers structure indemnification to capture the risk they cannot eliminate. The documentation exists to bound that indemnification scope, not to paper over real problems.

10. Build the data room before the banker

Diligence readiness is the dimension that most directly determines whether a seller controls the process or the buyer does. A data room that responds to requests within 72 hours signals operational discipline and gives the seller leverage. A data room assembled under post-LOI pressure signals the opposite. Gives the buyer a reason to slow the process, expand the QoE scope, and apply pressure on price.

What belongs in the VDR before the banker engagement. Three years of financial statements, all contracts with full modification history. ICS submissions and audit correspondence, indirect rates documentation. HR and benefits records. IP and technology documentation, and corporate records. The QoE supporting schedules (revenue by contract, margin by contract type, working capital by component, rate reconciliation) should be pre-built and current. These are the schedules the QoE team will produce regardless. A seller who produces them first controls the narrative.

If any of these ten items is not in place, the gap is specific and the remediation is sequenced. The GovCon fractional CFO is the right deployment model for most companies 12 to 24 months from a planned event, someone who has done this work before and knows the difference between what looks compliant and what actually is. Path-to-Sale is the structured financial readiness program that addresses items 1, 5, and 6 directly. And the GovCon Exit Readiness Diagnostic scores all ten dimensions in 15 minutes and tells you where to start. Reach Scott Engler directly if you want to start the conversation.

Scott Engler is the GovCon CFO Practice Leader at Averan, a 27-year finance veteran with 20 years in GovCon, defense, and PE-backed companies with multiple successful exits. Reach him at scott@averanadvisors.com.