WANT FINANCIAL FLEXIBILITY IF YOU WIN AND NIH SBIR GRANT?
Putting together a Phase I grant proposal can be daunting. First, you want to win the award and most innovators (falsely) worry that if their fringe and F&A rates are too high, they won’t be competitive. Second, you understand that your indirect rates will be capped at whatever is proposed, and you don’t want to have cash flow problems and put your business in jeopardy. Finally, you will need to prove to your funding agency that you are a good steward of their funds and stay in compliance with the Federal Acquisition Regulations (FAR) to be considered for a Phase II award.
Starting to work on your budget early in the Phase I grant proposal process is critical to alleviating the stress you will create if you win and failed to properly plan the financial consequences of your cost proposal.
START WITH THE MAXIMUM FRINGE AND F&A RATE ALLOWABLE
NIH SBIR Phase I grants have provisions that allow you to take up to a 40% (unmodified) F&A rate and generally allow for a fringe benefit rate of 35%, without question. To give yourself maximum flexibility once you win your award – use these figures as the starting point to your cost proposal. Don’t forget to take the 7% fee – this is money you can spend on anything your business needs that’s not reimbursable by the FAR.
WORK BACKWARDS USING THE 35% FRINGE BENEFIT AND 40% F&A RATE
Step 1. Start with the maximum award amount and work backwards. Let’s assume your total award amount will be $225,000. Reduce the $225,000 by the 7% fee and the 40% F&A, as follows: $225,000 divided by 1.07 divided by 1.40 = $150,200. The result of $150,200 represents the remaining amount of funds to be budgeted on direct project costs (plus fringe benefits which the agency displays as a direct cost on their proposal template).
Step 2. Next, figure out how much direct labor (plus 35% for fringe benefits) to budget. Keep in mind that direct labor costs are not the same as total labor costs! Let’s assume that your total pay is $100,000 and you will spend 70% of your effort on this project, with other 30% of your time managing the business. In this example, your direct labor is $70,000 and your fringe benefits are simply calculated by multiplying the direct labor by your 35% fringe rate: $70,000 x 35% = $24,500.
You now have $55,700 ($150,200 – $70,000 – $24,500) to budget in other categories like direct materials. direct consultants, direct subcontractors, and so on.
THREE FINAL TIPS FOR BUDGETING YOUR NIH GRANT PROPOSAL
A few final pieces of advice to consider when preparing your Phase I Grant proposal:
1. Start with the high-level budget category total numbers first, then figure out the details later. For example, if you start looking at how many trips to which city at what cost per trip, you will spend too much time to only find out you don’t have enough money. You can nail those details down after you have the “Other Direct Costs to be Budgeted” figure.
2. Make sure you are getting your indirect rate, fee and labor covered. Too many people ignore this and have to come up with money out of their own pocket to keep the project going. Don’t find this out the hard way!
3. Remember this budget is not set in stone. If you win the award, you can subsequently re-budget, if necessary, keeping in mind that you can reduce your indirect costs budget and increase your direct costs budget, however you can’t go in the other direction.
WE’RE HERE TO HELP
With over 30 years of experience in Government Award Accounting, we are experts in Phase I grant proposals and Phase II grant proposals, and know all the funding agencies.
To talk to one of our government award accounting experts about your Phase I grant proposal or any other concern, contact Ryan at firstname.lastname@example.org or 781.862.5170 ext. 2106
To learn why numbering matters in a SBIR-compliant accounting system, and how to set up your numbering system, go here.
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