If you plan to have the US government as a customer, you will need to set up your accounting systems so that it can handle your accounting requirements. Regardless of whether you are participating in a simple contract or an SBIR grant, you will be asked to negotiate fringe benefit fees, general fees, and general and administrative fees.

Fringe benefit rates include

• Compensated absences, such as vacations, holidays, and sick leave;
• Medical programs, such as medical and dental insurance;
• Retirement, such as the defined contribution portion of your retirement plan and the plan’s service fees;
• Long-term disability coverage;
• Workers’ compensation coverage; and
• Employee wellness, such as membership in a fitness club and other wellness programs

Overhead costs cover direct and indirect support for employees whose time is billed to the Government. This includes items like

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

General and administrative expenses cover other costs that are necessary for the company to perform on this contract, including:

• Management (and its associated direct and indirect marginal costs)
• Legal costs
• State and federal taxes
• Marketing costs to the government
• Accounting

However, keep in mind that they have extensive regulations that cover what is not considered an allowable cost (see FAR Section 31.205 – Selected Costs [http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/far/31.htm#P268_51249] for a specific description of what is allowed and what is not.

Once you have negotiated these rates, you will be asked to support them annually 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 to include in these calculations, it will take a long time to read all the regulations. If you think you want to get government contracts, you should think ahead or hire a consultant to help you with the process.