Budgets are of vital importance to government contractors. First, your budget is a great planning tool. It forces you to think about your company’s direction and the associated expenditures. In addition, your budget provides the basis for determining the pricing on cost proposals. This budget will be the document that government auditors and pricing specialists will want to see as justification for the indirect rates bid in your cost proposals. It provides an important component in determining whether you will make money on the contract. Second, the budget will provide a yardstick to use in assessing your financial performance. Finally, if you are submitting provisional rate requests to DCAA or your cognizant agency, this budget is the basis for that request.
Three things to remember:
- Your budget should be in the same format as your chart of accounts.
- Be fairly conservative when estimating your expected volume of business for the coming year. You don’t want your budget indirect rates to be lower than you can perform.
- Periodically compare your actual indirect rates to your budgeted and contracted rates. Make adjustments to your costs where possible to stay within your budgeted rates.
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KDuncan & Company is dedicated to providing knowledge and support for small government contractors about concerns regarding government contracting. For questions on areas such as as cost proposals, accounting systems, DCAA compliance, and incurred cost audits, reach out to KDuncan & Company.