Shutdown-Proof Your GovCon Business: Financial Contingency Planning That Actually Works

The federal government may be out of money, but your business doesn’t have to be.

With the October 2025 shutdown in full swing, small and mid-sized government contractors are once again staring down paused payments, frozen task orders, and radio silence from furloughed contracting officers. If this feels like déjà vu from 2013 or 2019, it should. And yet, many small businesses are still caught flat-footed when the funding stops.

Let’s break down what a strong financial contingency plan looks like in the real world, and what small federal contractors can do right now to protect cash flow, contracts, and employees.

What Smart Financial Contingency Planning Looks Like

The short version? Cash cushions and credit access, well before you need them.

Experts recommend maintaining 60–90 days of operating expenses in reserve. That’s not just for show. It’s to ensure you can cover payroll, rent, and core operations even if invoices go unpaid for two months. During the 2018–19 shutdown, many firms used that reserve to avoid layoffs while waiting on frozen federal payments.

But reserves aren’t enough. You also need a bank line of credit or alternative financing ready to activate. One common tactic is invoice factoring, selling your unpaid government invoices to a third party in exchange for 90–95% of the invoice value upfront. This gives you fast liquidity when agencies can’t process payments.

The best-prepared firms:

• Run cash-flow scenarios assuming 30–60 days of no revenue

• Meet with lenders before a shutdown to verify credit access

• Accelerate outstanding collections before the fiscal cliff hits

If you’re not doing this yet, now’s the time. Contingency isn’t a someday plan. It’s today’s survival kit.

Why This Matters for Small Contractors

Unlike big primes, small firms often don’t have the luxury of a massive balance sheet or multiple revenue streams. Many rely on a handful of contracts, and when those stop, so does cash flow.

Let’s be clear:

• The FAR does not allow agencies to order work without funds. If there’s no stop-work order, document the impact anyway, and reserve your right to seek reimbursement later.

• You have only 20–30 days under most FAR clauses (like 52.242-14 and 52.243-1) to file for cost adjustments or contract modifications. Miss it, and you're likely out of luck.

• If you continue working without written direction, you could breach FAR’s “Duty to Proceed” clause and lose out on compensation.

This isn’t just about survival, it’s about protecting your legal and financial footing for recovery after the shutdown ends.

How to Keep Your People Paid (and Ready)

Your workforce is your most valuable asset. When funding stalls, you need creative, but compliant, ways to retain them.

Here are options used successfully in past shutdowns:

• Require use of accrued leave instead of furloughs

• Reassign staff to state/local or commercial projects

• Reduce hours to spread available payroll across more employees

• Offer internal training or backlog cleanup projects

Just be careful with FLSA rules, for example, don’t dock exempt employees below salary thresholds without risking their exempt status.

You also need to consider WARN Act requirements if furloughs or layoffs exceed certain thresholds. And document everything, from timecards to training logs, in case you need to justify costs later.

Don’t Wait to Diversify Your Revenue

One of the most important lessons from past shutdowns: federal-only is a dangerous strategy.

Successful contractors build out other revenue streams year-round, not just in crisis mode. That could include:

• Pursuing state, local, or education (SLED) contracts

• Teaming with large primes on essential services

• Picking up commercial work or nonprofit projects

Even simple diversification helps: one veteran-owned firm in 2019 reallocated staff from paused DoD work to funded Homeland Security contracts.

If you're not already exploring other agencies, markets, or NAICS codes, this is the perfect moment to start. Bonus: revenue diversification also makes you more creditworthy when seeking SBA 7(a) loans or lines of credit post-shutdown.

What To Do Right Now

Whether you're fully funded or frozen, here’s your practical action list:

• Evaluate each contract. Check if it's funded with prior-year or multi-year appropriations, those may continue. Know your option-year deadlines.

• Talk to your Contracting Officer. Don’t wait for them. Ask if a stop-work or suspension order is coming. Get everything in writing.

• Activate your cash plan. Tap into your reserves. Accelerate collections. Use factoring if necessary.

• Mitigate personnel costs. Shift staff where possible. Use leave. Avoid unpaid work that violates labor law.

• Document everything. Set up shutdown-specific cost centers. Log labor, expenses, communications, it’s all potential claim material.

• Know your rights. Never volunteer services outside appropriations. Track FAR deadlines like a hawk.

When the shutdown ends, submit cost adjustments fast (within 30 days). Resume billing immediately. Debrief your team, update your plan, and prepare for next time, because it won’t be the last.

Big Picture: Survive Now, Build Resilience for Later

This shutdown, like every one before it, is a test. Not just of your finances, but of your systems, partnerships, and ability to adapt.

Building a resilient government contracting business means treating shutdowns as inevitable, not unlikely. Financial contingency planning is the difference between scrambling and staying ready.

If you’re navigating certifications, exploring new NAICS codes, or wondering how to pitch new agencies during the freeze, now is the time to act.

You can’t stop the government from shutting down. But you can stop it from taking your business down with it.

If you’re building a stronger pipeline beyond federal shutdowns, check out our blog post on Scaling Up: From Your First SLED Win to a Repeatable Growth Strategy for real-world steps to diversify your contracts and prepare for the next disruption.

If you aren't a Squared Compass partner, what are you waiting for? From getting your business set up with specific government set aside programs at both the State and Federal level, to being empowered by a Fractional Capture team to win government contracts, to receiving tailored government contract opportunities Squared Compass delivers immense value which helps propel our partners to success. Schedule a chat with our team today.