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Grant Funding (SBIR and STTR Programs)
Businesses are always in need of funding. Many companies turn to government grant funding programs (Small Business Innovation Research (SBIR) and Small Business Technology Transfer Research (STTR)) as a strategic source of capital. The advantages of government grant funding include:
- no dilution of equity interests,
- no repayment of funds,
- ability to get funding for "high-risk" projects, and
- support of innovation through proof of concept and product development stages.
Government grants (and grant contracts) are excellent source of capital. These government programs do have a cost associated with them. The recipients of these funds must be able to satisfy technological, financial, and administrative requirements imposed as conditions of funding.
The requirements imposed on businesses are not unrealistic. They are simply "professional" management practices that commonly evolve in businesses as they grow. They include:
- cash management
- budgeting
- financial controls and reporting
- management controls
- procurement practices
- employment practices
- compensation
- timekeeping
- recordkeeping
- other general and grant specific
Establishing a sound business infrastructure (systems, policies, and procedures) actually enable your business to run more efficiently - if they are done well and designed with your business in mind.
Beginning with a properly structured accounting system, businesses that are proactive in compliance save time and money. They are able to pursue additional funding opportunities and reduce the risk of non-compliance and avoid the necessity of repayment of the grant (plus interest and penalties).
Grant funding is a fantastic option for companies. What isn't an option is complying with the requirements.
Grant Funding (SBIR and STTR Programs): Three Phases
Grant funding has three phases: proposal, award, and execution/delivery. Grants are a strategic funding source that can play a significant role in business development, both the technology and the business management systems. In seeking grant funding, the proposal process is requires technology, financial, and commercialization knowledge. A small business must be able to demonstrate that they have a technology worth "testing", proof of concept (Phase I). The small business must also demonstrate that they have a plan for testing the technology (proving that it is feasible) AND that the business is financially and managerially capable of delivering on the commitment to the project.
Phase II projects (product development) also share the technology, financial, and administrative requirements. However, in Phase II projects, the ability to demonstrate a plan for commercializing the product/technology is also a key element. Commercialization funding isn't grant funding. Commercialization funding is dollars the business generates from operations, equity investors, or debt holders. Commercialization is often referred to as "Phase III", but the government grant programs do not provide funds for this phase. It is the responsibility of the business developing the technology to obtain sufficient funding during Phase II to fund Phase III.
Critical Phases: Proof of Concept, Product Development, and Commercialization
The government through its grant programs funds a portion of the costs to prove a concept and develop a product from that concept. The grant funds are not intended to:
- cover the full cost of proof of concept or product development
- cover all business costs (some costs are unallowable and some costs are acceptable only as a "fair share" allocation)
- be a sole source for funding a business
- cover commercialization costs
- be spent as the recipient pleases.
Critical Issues: Negotiation, Agreements, and Setup of the Award
The small business that seeks grant funds needs to be aware that the terms and conditions included in the grant agreement and in the grant program are not optional. These terms and conditions are requirements that the business must fulfill to continue to be eligible for grant programs, to retain the funds awarded (and spent), and to stay in business.
Understanding the requirements in your grant agreement and those imposed by law and agency regulations before you sign the agreement is (to say the least) important. Once the grant agreement is signed, a business is bound by those terms and conditions. Signing the agreement means you have accepted those terms and have stated that you will comply from day one of the grant agreement.
Also, the financial aspects of the agreement - the direct costs, allowable costs, and indirect rates - determine how you will be compensated. While the elements of what will be paid are spelled out, those funds aren't guaranteed if in review of the program activities the business fails to provide adequate documentation of the expenditures. Costs that were reimbursable and allowable can be disallowed if the paperwork and other requirements are not satisfied.
Critical Compliance: Administrative and Financial
Many businesses believe that achieving the technology program goals is enough. That is key, but it isn't sufficient. Grant recipients must be able to provide demonstrable controls, recordkeeping, and oversight to the funds received from the grant. Grant recipients are subject to audit of the programs: pre-award, during the program, and post-project (as much as three years after the grant close date). All recipients are subject to audit, even though the typical audit threshhold is $500,000 received in a year.
Compliance delayed is risk incurred. If a company isn't compliant from day one, then every day that passes is a day at risk and an increasing cost to comply. The clean up of transactions and the lack of adequate documentation are time consuming and challenging activities. Compliance cannot be delayed. Businesses may be "lucky" and dodge an audit in a particular time period, but that doesn't mean those records and activities won't be audited in the future. The longer the delay in compliance, the more work will need to be done AND some compliance issues cannot be fixed retroactively.
What does F.O.C.U.S. Resources do for grant applicants and recipients?
- Identify compliance requirements
- Review existing business systems to determine if they are capable of delivering the "result" required by grant programs
- Educate and train the client team to comply as part of "normal" business
- Develop customized tools and systems that meet the needs of each client's individual business approach.
- Develop management and financial control systems: budgets, indirect rates, management control policies and procedures, recordkeeping, etc.
- Identify risk and clean-up issues
From Finance to Strategy...to Bottom-line Results!
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