Merlin International, based in Englewood, Colo., is a fast-growing provider of IT consulting, sales and services to federal government agencies. Started in 1997 with a $500 personal loan, Merlin now has clients including the U.S. Department of Homeland Security, the U.S. Department of Defense and NATO. Merlin now helps the government reduce threats, mine information and store vast amounts of data at those agencies. The company, which ranked #2 on the 2005 Inc. 500, had annual revenues of $133 million last year. Inc. Technology spoke with founder, CEO and President David Phelps.

Inc. Technology: What do fast-growing small and medium business leaders need to know about technology planning?

David Phelps: We have learned a few things in our own growth. The biggest thing is to take time to look forward and deal with things such as financial control, forecasting, reporting and governance. We've outgrown two accounting systems and our IT system a couple of times over, so we learned to plan and look out six to 12 months and ask: What do we need to put in place to support that growth? Without this planning, companies may find themselves with not enough capital to fund growth.

Inc. Technology: What challenges do small businesses face in terms of technology management?

Phelps: It takes an entirely different IT infrastructure and cost to manage a company of 10 people than it does a company of 150 people. There are the issues of compliance, managing software licenses and getting the right tools, people and inventory. We spend $300,000 to $400,000 each year just on IT equipment like laptops, BlackBerrys and related equipment so that people can be productive. Then we refresh it appropriately. Another example is our accounting system. We recently migrated to a different system that would scale to our growth, which is close to 1,000 employees is.

Companies should also outsource when it's appropriate. We still outsource our payroll. But we brought our Human Resources Department in house once we got to about 100 people. It just takes doing a cost-benefit analysis on these things.

Inc. Technology: How do you plan for growth when starting a company on $500?

Phelps: It was a complete bootstrap operation. I took a mortgage on my house. I took on debt from my credit cards and my house, and I put $500 into my bank account, made my first set of business cards and letterhead. The first desk I had was from a table top that my neighbor made that I put over two file cabinets. It was tough. I got incorporated with an idea of what I wanted to do. But I was incubating the idea while I still had a job.

Inc. Technology: How does your company help the government use technology to prevent terrorism?

Phelps:We now provide a couple of pieces to the Department of Homeland Security. One is fraud detection. We help the Department to track accuracy about people who apply to come into the country on a temporary worker status or for on an educational visa. We take the information that they give us -- who they say they are and where they say they're from -- and along with other sources of information, we can correlate it to see if [the applicants] are telling the truth. Then, we can flag that information before the Department approves the visas because if we waited until after the visas were approved, we may not be able to find them.

We also strengthened the Department of Defense's information technology applications, which yielded better decisions, quicker reaction time and more flexibility, especially in wartime.