1. Do it early, don't wait

Starting your budget preparation well in advance is going to reap huge rewards.

Early preparation allows you to gather all necessary financial information, consult with team members and advisors, and make thoughtful decisions about resource allocation.

2. Understand the budget categories

Your budget should be categorized into direct costs, indirect costs, and the small business fee (profit). Here’s a detailed look at each category:

• Direct Costs: These include any costs directly associated with carrying out your proposed research, such as salaries, wages, fringe benefits, equipment, travel, and other direct costs like materials and supplies, publications, consultant services, and subawards.

• Indirect Costs: These cover the general costs of being in business, such as rent, utilities, and administrative expenses. Each company has a unique indirect rate, which must be derived based on your specific costs.

• Small Business Fee (Profit): This is a reasonable profit/fee that you can request, typically ranging from 7% to 11% of the total budget. However, 7% is the most commonly accepted fee due to budget constraints.

  
  

3. Calculate Your Indirect Rate

Your indirect rate is essential for accurately budgeting indirect costs. This rate is expressed as a percentage of your direct costs and should be derived specifically for your company.

Using another company’s indirect rate is not acceptable and can lead to budget inaccuracies.

Your indirect rate cannot be too high, and may not be the same as what you pay your staff.

For example: a scientist should not cost more than $125 per hour, even if you pay that person $150 per hour.

4. Include a Detailed Budget Justification

Your proposal must include a budget justification that documents and justifies each budget line item. This justification should be up to 5 pages long and provide clear explanations for all costs.

5. Ensure Proper Allocation of Funds

Start with the total maximum budget allowed ($1,250,000) and allocate funds accordingly:

• Set aside the small business fee: Typically 7% of the total budget.

• Allocate for indirect costs: Based on your derived indirect rate.

• Determine direct costs: The remaining amount will be available for labor, materials, travel, and other direct costs.

6. Comply with NSF Guidelines

NSF has specific guidelines and requirements for budget preparation:

• Letters of commitment: From consultants and subawardees should be included in the "Other Supplementary Documents" section.

• Budget revisions: If requested by the NSF SBIR/STTR Program Officer, revised budgets must include a complete budget justification.

• Current and Pending Support: Include this information for each PI, co-PI, Senior Personnel, and budgeted consultants.

7. Maximize Your Budget Efficiency

To ensure you are making the most of your budget:

• Direct costs should be well-justified: Ensure that each direct cost is necessary and well-justified in your budget justification.

• Use the small business fee wisely: This fee is the most flexible money you will receive from the federal government and can be used for unexpected costs, equipment, or other business needs.

8. Review and Update Your Budget

Budgets for small businesses will be reviewed against the cost principles and requirements outlined by NSF.

Ensure that your budget is reasonable and adequately supported.

If your proposal is considered for funding, you will be required to provide underlying supporting documentation for the Cost Analysis and Pre-Award Review (CAP).

To summarize:

Preparing a budget for an NSF SBIR Phase II grant requires meticulous attention to detail and adherence to specific guidelines.

By starting early, categorizing your costs correctly, deriving your indirect rate, and ensuring compliance with NSF guidelines, you can significantly improve your chances of securing this critical funding.

Remember to maximize your budget efficiency and use the small business fee effectively to support your startup's growth.