If you are planning to have the U.S. Government as a client, you will need to have your accounting systems set up so you can handle their accounting requirements. Regardless of whether you are engaging in a plain vanilla contract or an SBIR grant, you will be required to negotiate fringe benefit rates, overhead rates, and general and administrative rates.

Fringe benefits rates include

• Compensated Absences, such as Vacation, Holidays, and Sick Leave;
• Medical Programs, such as Health and Dental Insurance;
• Retirement, such as the Defined Contribution Portion of your Retirement Plan and Plan Service Fees;
• Long-term Disability Coverage;
• Worker’s Compensation Coverage; and
• Employee Wellness, such as Fitness Club Membership and Other Wellness Programs

Overhead covers direct and indirect support of the employees whose time is being billed to the Government. This includes items like

• Rent (only for the space that those employees use);
• Depreciation of their furniture and equipment;
• Utilities (based on the space allotment for those employees); and
• Supplies that these employees share, such as office supplies.

General and administration covers other costs that are necessary for the company to perform in this contract, including:

• Management (and their associated fringe, direct, and indirect costs)
• Legal costs
• State and Federal taxes
• Marketing to the Government costs
• Accounting

Note, however, that they have extensive regulations covering was is not considered an allowable cost (see the FAR section 31.205 - Selected Costs to get a specific description as to what is allowable and what is not.

Once you have negotiated these rates, you will be required to back them up yearly using an indirect cost model to show that you are matching your negotiated rates. This model is subject to audit.

Although you can figure out what needs to go into these calculations, it will take a long time to read all the regulations. If you believe that you want to win Government contracts, you must think ahead or hire a consultant to assist you with the process.

Ms. Worrall is the President of Worrall Consulting, LLC. Worrall Consulting is a finance and business strategy consultancy providing professional services to high growth, early stage companies. The company provides capital formation assistance, market research and business intelligence, and business planning strategy. More information about the company can be found at http://www.worrallconsulting.com - Additional financial and strategy advice can be found at http://www.cfoyourself.com