If you plan to have the US government as a client, you will need to have their accounting systems set up in order to handle their accounting requirements. Regardless of whether you are participating in a plain vanilla contract or an SBIR grant, you will be required to negotiate fringe benefit rates, general rates, and general and administrative rates.

Supplemental 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 Service Fees;
• Long Term Disability Coverage;
• Workers Compensation Coverage; Y
• Employee wellness, such as gym membership and other wellness programs

General expenses cover the direct and indirect support of employees whose time is billed to the Government. This includes items like

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

General and administration costs cover other costs that are necessary for the company to comply with this contract, including:

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

Please note, however, that they have extensive regulations covering what was 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 need to support them annually using an indirect cost model to demonstrate that you are matching the negotiated rates. This model is subject to audit.

Although you can find out what should be included in these calculations, it will take a long time to read all the regulations. If you think you want to win government contracts, you need to think ahead or hire a consultant to help you with the process.