Winning a federal contract, especially one with the Department of Defense (DoD contracts), is a huge milestone. But once the excitement settles, many business owners are left wondering: “Now what?”
At the recent Fed Supernova conference in Austin, our own Ashley Landes, Accounting Director and GovCon Lead at Badger CPA, shared how to establish your financial setup and internal controls to not only stay compliant but also build a profitable, scalable business.
If your business is entering the world of government contracting for the first time, here are the top three things you must do from an accounting standpoint.
Set Up a DCAA-Compliant Accounting System
To do business with the federal government, especially the DoD, your accounting system must comply with Defense Contract Audit Agency (DCAA compliance requirements).
This means:
- Segregating direct and indirect rates (costs)
- Tracking labor by contract with detailed timekeeping
- Maintaining audit-ready documentation
- Using a chart of accounts structured for compliance
Without a DCAA-compliant system, you risk failed audits, contract penalties, or lost funding. Partnering with an experienced GovCon CPA helps ensure your setup meets FAR Part 31 guidelines and keeps you audit-ready.
Develop & Monitor Indirect Cost Rates
Your indirect rates, also known as overhead, G&A, and fringe rates, are critical to ensuring your business doesn’t lose money while delivering on DoD contracts.
- Start with provisional rates based on expected costs
- Separate costs into appropriate cost pools
Prepare to submit your Incurred Cost Submission (ICE report) annually. - Regularly compare budget vs. actuals to adjust rates and protect profitability.
Many first-time government contractor businesses underestimate the importance of properly calculated indirect rates, and that mistake can be costly.
Create Project-Based Financial Visibility
Each federal contract should be managed like its own business unit. That means:
- Budget-to-actual tracking for each project or task order
- Automated allocation of costs by project
- Integrated systems linking timekeeping, payroll, billing, and reporting
Without strong financial visibility, you risk overbilling or underbilling, both of which create audit exposure and cash flow problems.
A Strong Start Builds Long-Term Success
Successfully managing a DoD contract requires more than just delivering great work, it demands tight financial controls, accurate reporting, and ongoing compliance.
At Badger CPA, we specialize in supporting government contractors at every stage of the GovCon journey, from new awardees to seasoned prime contractors. Whether you need to set up a compliant accounting system or optimize your indirect rates, our GovCon Accounting Team is here to help.
Ready to get started? Contact us today for a consultation, and let’s talk about how to make your DoD contract a financial success.