Overcoming Innovation Sabotage: 4 Common SBIR Accounting Mistakes to Avoid

The price of non-compliance can cost you an SBIR award. Are you making any of these easily preventable mistakes?

Government contracting can be a challenge; when you’ve cleared one hurdle, another one awaits, like finding a government-approved accounting system.

When COVID-19 hit, North Carolina's BioMedomics made a tremendous impact on the world by introducing their groundbreaking COVID-19 rapid test.

From their experience developing a rapid test to diagnose sickle cell disease through the SBIR program, BioMedomics was able to help combat the pandemic by slowing down the spread of contagion with their rapid COVID tests.

Doctor Holding BioMedomics COVID-19 rapid test

Now, we want you to picture a scenario where these rapid COVID tests didn't exist because of an oversight. What if the folks at BioMedomics failed to seize the federal seed funding needed for their initial research and development? And what if it was all because of something as simple as having an inadequate accounting system?

If BioMedomics didn't have their ducks in a row when they started their SBIR journey, this could have been the outcome. There are many pitfalls in traversing the SBIR program, and so many of them are easily avoidable.

There's a good chance you're reading this blog because you have a solution to today's most pressing technological and scientific needs, and you don't want to jeopardize your idea over something as trivial as accounting.

Let's look at some of the most common mistakes SBIR awardees make to sabotage their hard work.

Mistake 1:
Not having an acceptable and compliant accounting system. 

If it feels like we're constantly going on about the importance of government-approved accounting systems and Federal Acquisition Regulation (FAR) compliance, it's because we are. And that's for good reason.

Too often, we see dreams dashed because a small business owner's accounting system wasn't adequate. Unfortunately, oversight agencies, like the Defense Contract Audit Agency (DCAA) or the Defense Contract Management Agency (DCMA), aren't forgiving for non-compliance among government contractors.

auditor working with SBIR financial statements

The real shame is how easily avoidable these failures are. Having a FAR-compliant accounting system means you are following the BEST accounting practices. And practicing excellent accounting should be second nature.

Awarded SBIR grants are cost-reimbursable, but your accounting system must be compliant with FAR Part 31. This particular regulation establishes cost principles and procedures and helps you determine which costs are reimbursable, and you’ve accounted for them.

Typically, the first phase of the SBIR program is a firm-fixed-price (FFP) contract which is not subject to any adjustments, so your chances of having the DCAA breathing down your neck about compliance are relatively slim.

However, this doesn't mean you should wait until the last minute to ensure everything is in line with FAR requirements. These government watchdogs will check your accounting system before Phase II, and you can still lose an award for non-compliance no matter how much work you put into Phase I.

Mistake 2:
Proposing too low F&A or indirect rates.

You may think proposing a low, conservative estimate of your Facilities and Administrative (F&A) costs might give you a leg up when it comes to winning over the government. But, this kind of thinking could land you in hot water.

F&A, or indirect costs in a grant, can include electricity, internet, rent, and administrative services (and more). Unfortunately, we often watch small business owners create SBIR proposals with inaccurate indirect costs.

Incorrectly projecting indirect costs can lead to all sorts of cash flow nightmares. For example, if the amount you spend on indirect costs winds up exceeding the amount you projected, you'll be responsible for paying the remainder out of pocket.

Not everyone has thousands of dollars lying around, which means grantees may have to tap into their bank accounts or take out a second mortgage. This, of course, can have devastating effects on your business.

On the flip side, if your rate is much lower than what you projected, you run the genuine risk of committing inadvertent fraud by overbilling the government.

Estimating indirect rates can be an uphill battle, but it is your responsibility to project these costs in your proposal accurately. You'll need to know all of your company's expenses (direct and indirect) and understand how to charge costs in your accounting system appropriately.

Here's a great place to start: list all of your company's costs (don't worry about whether they're direct or indirect at this point.); your profit/loss statement or your income statement can help.

Not only do you need to understand the differences between direct costs, indirect costs, and even unallowable costs, but you must also thoroughly track your indirect rates to avoid any nasty surprises that could spell financial ruin.

Mistake 3:
Improper timekeeping and uncompensated overtime issues.

Sometimes, the idea of having to fill out a timesheet can feel too micromanaging. You or your employees might find punching in for the workday an unnecessary task better suited for people working menial jobs. But this is far from the truth.

Timekeeping is a vital cog in the accounting machine. Payroll is one of your most significant expenses, and keeping track of the hours worked is crucial. By documenting the actual amount paid to you and your employees, you can allocate these costs to the various billable and non-billable tasks performed in your project.

Close-up Of A Businesswoman Filling Weekly Time Sheet On Laptop In OfficeEvery cost-reimbursable government award must be FAR and DCAA compliant, and this includes timekeeping. FAR 31.201-2(d) states:

"A contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred, are allocable to the contract, and comply with applicable cost principles in this subpart and agency supplements. The contracting officer may disallow all or part of a claimed cost that is inadequately supported."

Yes, once again, we stress the importance of being FAR compliant. And yes, once again, this means employing BEST practices.

An audit will heavily scrutinize your timekeeping procedures. To ensure things go smoothly, make sure your company has documented policies and procedures, a labor charging system for hourly time, specific accounting and billing system properties, and a staff trained in DCAA compliance.

Here is what you'll need to do to get your timekeeping system up to speed:

  • Create a policy detailing the timekeeping requirements for ALL employees
  • Record EVERY hour of the workday, including leave
  • Have every employee track their time DAILY
  • Make sure you sign off and approve employee timesheets
  • Keep all timesheets (including timesheet corrections) for at least two years

Having a transparent, organized timekeeping system is one way to ensure you won't lose that hard-fought SBIR award. It will also ensure you don't run into the costly issue of uncompensated overtime. Uncompensated overtime is the excess hours worked by employees exempt from the Fair Labor Standards Act (FSLA) (salaried employees) in a 40-hour week without additional compensation, and it is an oversight that can cost you dearly.

Mistake 4:
Thinking you can do the books yourself.

The SBIR program is aggressively competitive, and the government's expectations can seem insurmountable.

Having a detailed Excel spreadsheet and QuickBooks is beneficial, but there is only so much those tools can do. For example, they can't cover things like rates, labor distribution, and accurate timekeeping.

Frustrated Businessman doing his own SBIR accounting and looking at laptopYou probably think you can't afford the costs of accounting services to bring you into compliance. It's understandable. But what are your innovations and ideas worth? You can't afford to have your solutions shelved because of flimsy and inadequate accounting.

FAR compliant accounting systems are complex and unique. Your time is best spent focusing on the research and development of your project. Not tracking indirect expenses, reconciling books, monitoring job costs reports, developing timekeeping procedures, and keeping checks and balances.

Team 80 is on a mission to help innovators like you succeed. We're also on a mission to eliminate SBIR failures. We understand the nuances of government-approved accounting and FAR requirements, and our outsourced accounting solutions are affordable so that you won't be breaking the bank.

Why are you waiting? Let us take over the accounting aspects so you can focus on turning your vision into a reality! Get in touch today!


Robotic Rover on Mars Surface with Moon and Sun in the background

Take Your Idea to the Mars (And Beyond): Exploring NASA's SBIR Program

Do you have an innovative idea worthy of deep space? We want to help you bring that idea to life with government funding.

In 2007, small business visionaries created a revolutionary technology that helped NASA's Phoenix Mission find water on Mars.

Honeybee Robotics, Yardney Technical Products, and Starsys Research furthered NASA's mission by developing an icy soil acquisitions device, lithium-ion batteries, and a wet chemistry laboratory. But if they didn't have the government's help, the ideas might have landed on the cutting room floor instead of Mars.
Robotic Rover on Mars Surface with Moon and Sun in the background

The Small Business Innovation Research (SBIR) program helped these small businesses bring their ideas to life.

The SBIR program has awarded funds to small businesses like yours for decades. The program funds early-stage research and development for specific government agencies like the National Aeronautics and Space Administration (NASA).

The NASA SBIR program might be the key to bringing your revolutionary technology to life and into Outerspace.

Keep reading to learn everything you need to know about NASA's SBIR program.

What is the NASA SBIR Program?

The SBIR program is highly competitive and encourages domestic small businesses to engage in Federally-funded research and development for innovative technologies with commercialization potential.

There have been many discussions recently about the role small businesses can play in NASA's upcoming directives. With NASA's renewed interest in going back to the Moon and Mars, the potential for small businesses to help further their mission is at an all-time high.

Robert Cabana, Director of Kennedy Space Center, presented testimony before the Senate Committee of Small Business and Entrepreneurship, highlighting the SBIR program's importance.

He noted that there had been a "Total spend to small business [of] more than $159 million," which has gone to "fund the research, development, and demonstration of innovative technologies that both fulfill NASA needs and have significant potential for successful commercialization."

How much are NASA SBIR/STTR awards?

NASA's combined annual SBIR and STTR budget hovers between $190M and $210M. Since 2011, NASA has awarded an average of $139M in Phase I and Phase II contracts annually. The maximum value for each Phase I SBIR award is roughly $125K, and Phase II's maximum value is around $750K. NASA explicitly states that every award-winning SBIR Phase I proposal is a firm-fixed-price contract.

How many phases are in the NASA SBIR/STTR program?

There are three phases in the NASA SBIR/STTR program. Here's how NASA's interactive guide describes each Phase:

  • Phase I — a small business establishes the scientific, technical, and commercial feasibility of a product or service.
  • Phase II — a small business will demonstrate the functionality of its idea through research and development (R&D).
  • Phase III — the commercialization of innovative technologies, products, and services that have emerged from Phase I and Phase II.

NASA Logo SignageEach Phase has a specific duration. The performance period for SBIR Phase I is up to 6 months, whereas the performance period for STTR is up to 13 months. The maximum performance period for both SBIR and STTR in Phase II is up to 24 months.

The NASA SBIR/STTR program does not let you switch from STTR to SBIR (or vice versa) after proposal submission. You also can't trade during the award period of performance or Phases I and II.

Every year, NASA releases a list of SBIR/STTR topics, and the proposals for these topics are due in the first quarter of the calendar year.

Don't worry if you haven't met the solicitation period for the year - you can always try again next year. Still, you should prepare, stay ahead of the curve and keep your eyes open for upcoming SBIR NASA topics.

What NASA topics are available?

NASA always has its eyes on the next frontier, and with the possibility of extended space travel, NASA needs innovative technology.

There are four Mission Directorates (MD) at NASA, and each MD has its own needs. Here are the Mission Directorates:

Each MD has topics or subtopics that support its needs. You can peruse a list of available topics to ensure that your idea will meet NASA's needs.

Topics are organized in Focus Areas, like:

  • Power and Energy Storage
  • Communications and Navigation
  • Sensors, Detectors, and Instruments
  • Life Support and Habitation Systems
  • Spacecraft and Platform Subsystems

Am I eligible for SBIR through NASA?

You're on the right path if your idea has research and technical innovation elements and meets NASA's needs.

However, suppose you want to be eligible for the NASA SBIR program (or any SBIR program). In that case, you must operate a for-profit business with less than 500 employees. Your company must be located in the US. It must be at least 51% owned and operated by one or more US citizens or permanent residents.NASA White Man & Black Women engineers sitting at desk looking at computers with large screen of astronauts on the wall

For STTR, you need to meet all of the same SBIR requirements, and you need to have a cooperative research and development relationship with a US Research Institution (RI). Your Research Institution must be an accredited college or university, a Federal research and development center, or a non-profit research organization.

How do I apply for NASA SBIR?

Are you sitting on the next revolutionary idea to help NASA explore the galaxy? If you are, it's time to start the SBIR proposal process.

The proposal process can be challenging, and prepare yourself; it's time-consuming (roughly 200 hours!). Your proposal must stand out above all the other applications, and you must prove your idea is substantive, and your team is prepared to see the project through to completion.

NASA scientists and engineers will evaluate your proposal, and they'll determine whether or not you qualify based on five factors:

  1. Scientific/Technical Merit and Feasibility
  2. Experience, Qualifications, and Facilities
  3. Effectiveness of the Proposed Work Plan
  4. Commercial Potential and Feasibility
  5. Price Reasonableness

Are you thinking about including a letter of general endorsement? Think again. NASA won't consider the blessings during the review process. If this sounds daunting, well, it is. Getting funds from the government is never easy.

Does this all sound a little daunting? It's understandable. Getting funds from the government is never easy. Take a deep breath, and don't be discouraged. Team 80 is here to help!

We have over 20 years of extensive experience working with agencies participating in the SBIR/STTR programs like NASA. We're familiar with the NASA proposal submission and solicitation process; we can put you on the path to NASA SBIR success!

Let's put your dreams in orbit. Get in touch today!


Male and Female Dod Researchers looking at tablet

You Can Be a Hero on the Government's Dime: Understanding the DoD SBIR Program

Bring your innovative idea to life and protect the nation. Here's how.

When the Department of Defense (DoD) had a severe machine failure issue, they called upon a small business, Sentient Science, for a solution. Sentient Science developed software allowing the military to predict critical equipment component failures. Now the DoD knows for sure if a Black Hawk helicopter is ready for retirement.
Pentagon Building in Washington DC

Federal Government funding via the Small Business Innovation Research (SBIR) program made the contract - and solution - possible. Without SBIR, small business owners with brilliant ideas - like you - would be unable to build world-class technology for an agency like the Department of Defense.

SBIR might be the key to bringing your DoD brainchild to life. Here's what you need to know.

What is the DoD SBIR Program?

The DoD SBIR program is a highly competitive program allowing small businesses to propose innovative research and development (R&D) solutions in response to critical military needs.

There are DoD SBIR programs that target and address various agencies' specific needs and interests. For example, the Navy SBIR program focuses on naval-specific needs, and the Army SBIR program focuses on the Army's unique needs.

Through Federally-funded research and development, small business innovators like you can serve the country without enlisting.

Am I eligible for the DoD SBIR program?

  • For-profit businesses with less than 500 employees are eligible for the DoD SBIR program.
  • Your company must be US-based and at least 51% owned and controlled by one or more United States citizens or permanent residents.

If you meet these requirements and have an innovative idea or solution (or have a creative idea or solution adaptable to the DoD's needs), you're probably eligible. And if you're part of the Air Force (or any military branch), you may qualify for the Air Force AFWERX program.

How is the DoD SBIR program funded?

Taxpayer dollars pay for the SBIR program. Each year, congress requires every agency participating in the SBIR program to contribute 3.2% of their excess research and development budget towards small businesses.

DoD has the largest budget out of all agencies in the SBIR program at $1.3 billion. At least 50% of the funding in the entire SBIR program comes from DoD.

Because of their larger budget, each SBIR phase pays out a little higher than typical SBIR awards through other agencies: Phase I awards can be up to $111,500 for a performance period that can't exceed six months, and Phase II awards can be up to $1.1 million with a performance period up to 2 years.

Please note: the DoD distributes SBIR funds through contracts, not grants. The DoD is your customer (essentially).

What are the DoD SBIR Phases?

As with everything in the SBIR program, there are typically three phases:

  • Phase I Project Feasibility: This phase determines your submitted idea's scientific, technical, and commercial merit. You'll solicit, pitch, and propose your idea to the DoD. Please keep in mind that you must ensure that your innovation aligns with the agency's described requirements.
  • Phase II Technology Development: Your research and development are funded during this phase. It's also when you'll develop your idea into DoD-supporting technology.
  • Phase III Commercialization: Phase III falls outside of the SBIR program. You must obtain non-SBIR government or private funding to transition the tech you developed in Phase II into a product or service for the government and commercial marketplace.

Here's where things get funky. Another detail separates the DoD SBIR program from the standard program; it's a step called Direct to Phase II. Direct to Phase II initiates when the DoD issues a Phase II award to a small business that didn't receive its Phase I SBIR or STTR award.

Direct to Phase II initiates when a small business can prove the scientific feasibility, technical merit, and commercial opportunities of their innovation by soliciting contract proposals and grant applications.

What does the DoD need from me?

The military and the Department of Defense constantly look for innovative technologies. Three times a year, the DoD releases a list of topics to the public called Broad Agency Announcements (BAA). These announcements will help you understand the DoD's research and development needs.

You can browse current DoD announcements here. We suggest that you sign up to receive DoD Listserv emails. You can also follow their regularly updated Facebook and Twitter accounts for information.

Today, the DoD requires research and development in the following areas:

  • Air Platform
  • Battlespace
  • Biomedical
  • Chemical/Biodefense
  • Electronics
  • Ground/Sea Vehicles
  • Human Systems
  • InfoSystems
  • Materials/Processes
  • Nuclear
  • Sensors
  • Space Platforms
  • Weapons

Here's something else you should know: you can't submit a proposal for R&D that isn't included in an announcement.

DoD agencies routinely release Broad Agency Announcements (BAAs) specifically targeted for the Small Business Technology Transfer (STTR) program to encourage participation from university researchers like DESI, MURI, and ARO.

What agencies are within the DoD?

Here's a list of the 13 agencies that make up the Department of Defense. You should keep in mind that not all agencies participate in the DoD SBIR program every year, and some release additional announcements outside of the regular schedule. Also, some agencies provide broader, more general topics and programs to encourage participation from new small businesses.

Army - United States Army
Navy - United States Navy
Air Force - United States Air Force
CBD - Chemical and Biological Defense
DARPA - Defense Advanced Research Projects Agency
DHA - Defense Health Agency
DLA - Defense Logistics Agency
DMEA - Defense Microelectronics Activity
DTRA - Defense Threat Reduction Agency
MDA - Missile Defense Agency
NGA - National Geospatial-Intelligence Agency
OSD - Office of the Secretary of Defense
USSOCOM - United States Special Operations Command

How do I apply for DoD SBIR/STTR?

If you think you have what it takes to further the DoD's mission, start by creating an account here. Once you’re registered and settled on a topic, you can begin the Defense SBIR/STTR Innovation Portal (DSIP) proposal process.

We understand that the proposal process can be overwhelming. Team80 is here to help! We’re SBIR experts with over 20 years of experience working with SBIR-participating agencies like the DoD. We understand every aspect of the proposal submission and solicitation process. Let's bring your vision to life!

We're here to help you succeed. Get in touch today!