So I know the obvious “influencer” of wrap rates for small businesses is making sure you max out on direct labor – but aren’t there other things you should consider in managing the indirect cost portion of the indirect rate calculation?
Here are a few to consider:
1. Executives Billable : For smaller companies, what % of time do your executives spend in direct labor vs. G&A? – As a small government contractor you cannot afford to have a lot of executive time that is not billable.
2. Budgeting: Do you perform zero based budgeting or do you just add “x”% on to last year? If your rates were wrong last year, just adding an “x”% to last year’s actuals will produce the same problem. Really take a look at what you are spending and make thoughtful decisions about that spending.
3. Cost Segregation: Are you properly segregating costs based on your indirect pool definitions?
4. Fixed Assets: Have you classified asset purchases and depreciation correctly?
5. Unallowables: Have you properly classified unallowable expenses?
The most important thing small businesses can do is to properly budget their costs and then to monitor their actuals against them throughout the year.
I have seen clients who have had 25 – 30 % swings between their Provisional Billing Rates (PBR) and their actual rates! That can be a very costly difference when you have to reconcile your rates to actual.