SBIR and STTR awards can provide important non-dilutive funding for innovative companies, but funding approval does not always mean cash flow will feel easy.

 

Many awardees still face timing pressure.

 

Payroll may be due before reimbursement arrives. Subcontractors may need payment before the next drawdown. Vendors may require deposits. Testing costs may come earlier than expected. Indirect costs may be under-recovered. A project may burn cash faster than the approved budget assumed.

 

For founders, this can be frustrating. The company has the award, but the timing of spending and the timing of payment do not always line up.

 

At Peter Witts CPA PC, we help SBIR/STTR awardees improve cash flow visibility by connecting award budgets, burn rate, payroll, subcontractor payments, indirect cost recovery, drawdowns, invoices, and working capital planning.

 

Why Cash Flow Planning Matters During SBIR/STTR Performance

 

SBIR/STTR awards are often viewed as funding milestones, but they are also operating commitments.

 

Once the award begins, the company may need to hire employees, pay founders or technical staff, engage consultants, begin subcontractor work, purchase materials, pay for testing, and cover administrative costs. These expenses may happen before cash is received or before reimbursement is processed.

 

Cash flow planning helps the company answer:

• When will costs be incurred?

• When will cash be needed?

• When can the company draw, invoice, or request reimbursement?

• How long will payment take?

• Can payroll be covered on time?

• Are subcontractor payment terms aligned with award cash flow?

• Are indirect costs being recovered properly?

• Is the company spending faster than planned?

• What working capital is needed between payments?

• Are there funding gaps before the next award phase?

A strong award budget tells the company what it can spend. A strong cash flow plan shows when the company needs cash to perform the work.

 

Award Amount Is Not the Same as Available Cash

 

One common mistake is treating the total award amount as immediately available cash.

 

An SBIR/STTR award may approve a total funding amount, but the company may still need to follow agency payment rules, drawdown requirements, reimbursement procedures, invoicing terms, milestone schedules, or funding limitations.

 

Depending on the award, cash may be received through:

• Advance drawdowns

• Reimbursement requests

• Contract invoices

• Vouchers

• Milestone payments

• Scheduled payments

• Progress payments

• Other agency-specific payment methods

The payment method affects cash flow.

 

A company that must incur costs before reimbursement needs more working capital than a company that can draw funds in advance for immediate needs. A company paid by milestone may need enough cash to complete work before payment is released.

 

Understand the Payment Method Before Spending Begins

 

Before award performance begins, the company should review how funds will be accessed.

 

For NIH awards, for example, grant payments may be made through PMS by advance payment methods, cash request, or cash request on a reimbursement basis, as specified in the Notice of Award. NIH also states that advance cash requests may be based on expected disbursements during the succeeding month and the amount of federal funds already on hand.

 

Other agencies may use different systems or payment methods.

 

Awardees should confirm:

• How payment requests are submitted

• Whether funds are advanced, reimbursed, invoiced, or milestone-based

• Who has system access

• What documentation is required

• Whether requests are tied to actual costs, immediate cash needs, or milestones

• How often requests can be submitted

• How long payment processing may take

• Whether there are funding limits or restrictions

• How payments should be reconciled to accounting records

This review should happen before payroll or subcontractor costs begin.

 

Payroll Is Usually the Biggest Cash Flow Pressure

 

Payroll is often the largest recurring cost in an SBIR/STTR award.

 

Founders, scientists, engineers, software developers, project managers, and technical staff may all be needed to perform the funded work. Payroll also comes with taxes, benefits, fringe costs, and timing deadlines that do not wait for reimbursement.

 

Cash flow planning should show:

• Payroll dates

• Gross wages

• Payroll taxes

• Fringe benefits

• Founder compensation

• Direct labor charged to the award

• Indirect labor

• Payroll provider withdrawal dates

• Cash needed before payment is received

• Reimbursement or drawdown timing

• Payroll support documentation

If payroll is due every two weeks but reimbursement takes longer, the company needs enough working capital to bridge the gap.

 

Founder Payroll Should Be Planned Carefully

 

Founder compensation can create additional cash flow complexity.

 

In early-stage companies, founders may defer salary, take reduced pay, or shift between paid and unpaid work depending on funding. Once an SBIR/STTR award begins, founder labor charged to the award should be supported by payroll, timekeeping, and the approved budget.

 

Before relying on award funds for founder compensation, ask:

• Was founder labor included in the approved budget?

• What level of effort was approved?

• Is the founder being paid through payroll?

• Are timesheets being maintained?

• Is founder work direct, indirect, or outside the award?

• Does payroll timing match drawdown or reimbursement timing?

• Can the company cover founder payroll if payment is delayed?

Founder labor should be planned as part of the cash flow forecast, not treated as whatever money remains.

 

Subcontractor and Research Partner Payments Can Create Timing Gaps

 

Subcontractors, consultants, universities, research institutions, and testing partners can create significant cash flow pressure.

 

A partner may invoice monthly, require a deposit, or expect payment before the company receives reimbursement from the government.

 

Before work begins, review partner payment terms carefully.

 

Ask:

• When will the partner invoice?

• Are deposits required?

• Are payments tied to deliverables?

• Are invoices due before reimbursement is received?

• Does the partner’s invoice timing match the approved budget?

• Can the company hold payment until costs are reviewed?

• Are subcontractor costs included in drawdown or invoice support?

• What happens if the agency payment is delayed?

• Is the partner budget being tracked against actual spending?

Payment terms should be reviewed before the agreement is signed. A technically strong partner arrangement can still create cash stress if payment timing is not planned.

 

Materials, Testing, and Equipment May Require Upfront Cash

 

Technical projects often require materials, supplies, lab services, prototype components, software, testing, equipment, or fabrication.

 

These costs may not spread evenly across the award period. Some may occur early. Others may cluster around key technical milestones.

 

Cash flow planning should identify:

• Large purchases

• Vendor deposits

• Testing schedules

• Equipment lead times

• Shipping or fabrication costs

• Credit card payment dates

• Vendor payment terms

• Reimbursement timing

• Documentation needed for payment support

A budget-to-actual report may show that the award is still within budget, but the cash flow forecast may show that the company needs cash sooner than expected.

 

Both views matter.

 

Burn Rate Shows How Fast the Award Is Being Used

 

Burn rate helps leadership understand how quickly award funds are being spent.

 

A basic burn rate review compares spending to the approved budget and remaining performance period.

 

Awardees should monitor:

• Monthly labor spend

• Monthly subcontractor spend

• Materials and testing costs

• Indirect cost activity

• Total costs incurred to date

• Remaining award budget

• Average monthly spend

• Remaining months in the award

• Expected future costs

• Cash on hand

• Payment timing

If burn rate is too high, the company may run out of budget before the work is complete. If burn rate is too low, the company may be delayed or costs may not be recorded properly.

 

Burn rate should be reviewed monthly, especially during Phase II or larger awards.

 

Budget-to-Actual Reporting Supports Cash Flow Planning

 

Cash flow planning should be connected to budget-to-actual reporting.

 

The approved budget shows what was planned. Actual costs show what has happened. The forecast shows what is likely to happen next.

 

A useful monthly report should include:

• Approved budget by category

• Actual costs incurred

• Remaining budget

• Burn rate

• Upcoming payroll

• Upcoming vendor payments

• Upcoming subcontractor invoices

• Expected drawdowns or reimbursements

• Indirect cost recovery

• Remaining funding

• Cash needed for the next 30, 60, and 90 days

This gives leadership a clearer view of both award performance and business liquidity.

 

Indirect Cost Under-Recovery Can Strain Cash Flow

 

Indirect costs are one of the most common cash flow pressure points.

 

If the company underestimates indirect costs, uses an unsupported rate, or fails to recover the full cost of administration, facilities, payroll support, accounting, insurance, compliance, and general operations, the award may not cover the true cost of performance.

 

Under-recovery can happen when:

• The indirect rate is too low

• Fringe costs are underestimated

• Administrative labor is not budgeted

• Facility costs increase

• Direct labor base changes

• Unallowable costs are not excluded properly

• Indirect costs are not included correctly in drawdowns or invoices

• Actual costs differ from proposal assumptions

An award can appear fully funded and still create cash pressure if indirect costs are not planned correctly.

 

Working Capital Is Still Needed

 

SBIR/STTR funding can reduce the need for outside capital, but it may not eliminate working capital needs.

 

Working capital is the cash available to cover operations between spending and payment.

 

Awardees may need working capital for:

• Payroll before reimbursement

• Subcontractor invoices before payment

• Vendor deposits

• Materials purchases

• Testing costs

• Indirect expenses

• Delayed payments

• Phase transition gaps

• Non-award business activity

• Commercialization activity outside the award

Founders should plan for the possibility that award funds may not always arrive exactly when costs are due.

 

Phase I to Phase II Gaps Can Create Cash Pressure

 

Cash flow gaps often happen between phases.

 

A company may complete Phase I and wait for Phase II application review, award negotiation, or funding release. During that gap, the team may still need to retain employees, continue limited technical work, prepare commercialization plans, manage accounting, and maintain operations.

 

Before the end of Phase I, companies should ask:

• How long could the gap be before Phase II funding begins?

• What staff must be retained?

• What costs continue after Phase I ends?

• What work can or cannot be charged to the award?

• Is bridge funding needed?

• Are non-federal funds available?

• Are payroll and benefit costs sustainable?

• Are closeout costs planned?

• Is the accounting system ready for Phase II?

The gap between awards should be part of financial planning.

 

Watch for Non-Award Costs

 

Not every company expense can be charged to the SBIR/STTR award.

 

Founders may still need to cover fundraising, investor relations, sales activity, broad business development, unrelated R&D, commercialization activity outside the approved scope, or general company costs that are not allowable under the award.

 

Cash flow planning should separate:

• Award-funded direct costs

• Award-supported indirect costs

• Non-award operating costs

• Unallowable costs

• Commercialization activity

• Investor-funded work

• Customer-funded work

• Internal R&D outside the award

This separation helps leadership understand the company’s true cash needs beyond the federal award.

 

Drawdowns and Reimbursements Should Tie to Records

 

Payment requests should be supported by accounting records.

 

For grant drawdowns, reimbursement requests, invoices, or vouchers, the company should be able to tie payment activity to:

• General ledger detail

• Payroll records

• Timesheets

• Labor distribution reports

• Vendor invoices

• Consultant invoices

• Subcontractor invoices

• Indirect rate schedules

• Budget-to-actual reports

• Award terms

• Payment records

NIH notes that recipients must submit timely, accurate grant expenditure reports and reconcile PMS cash transaction reports with expenditure reports submitted to NIH. This is why payment activity should be reconciled regularly, not only at closeout.

 

Build a 13-Week Cash Flow Forecast

 

A practical way to manage award cash flow is to maintain a rolling 13-week cash flow forecast.

 

This forecast helps the company see short-term cash pressure before it becomes urgent.

 

A useful forecast may include:

• Starting cash balance

• Expected drawdowns

• Expected reimbursements

• Expected contract payments

• Payroll by pay period

• Payroll taxes and benefits

• Consultant payments

• Subcontractor payments

• Vendor payments

• Materials and testing costs

• Rent, software, insurance, and administrative costs

• Non-award expenses

• Ending cash balance by week

• Notes on timing risks

The forecast should be updated as invoices, payroll, drawdowns, and project activity change.

 

Monthly Cash Flow Review Checklist

 

Each month, SBIR/STTR awardees should review:

• Actual costs against approved budget

• Burn rate

• Payroll due in the next 30 days

• Vendor and partner invoices due

• Expected drawdowns or reimbursements

• Payment delays or system issues

• Indirect cost recovery

• Remaining award funds

• Remaining work

• Non-award operating costs

• Cash needed for the next 30, 60, and 90 days

• Documentation supporting payment requests

This review helps leadership make decisions before the cash balance becomes the only warning sign.

 

Common SBIR/STTR Cash Flow Mistakes

 

SBIR/STTR companies often run into cash flow issues because they focus only on the award amount.

 

Common mistakes include:

• Assuming the full award amount is immediately available

• Not understanding the payment method

• Waiting too long to request reimbursement or drawdowns

• Not forecasting payroll timing

• Signing subcontractor terms without reviewing payment timing

• Ignoring vendor deposits or upfront purchases

• Underestimating indirect costs

• Not monitoring burn rate

• Mixing award and non-award expenses

• Not planning for Phase I to Phase II gaps

• Drawing or billing without support

• Waiting until closeout to reconcile payments

• Not maintaining working capital

These issues can create stress even when the company is technically within budget.

 

Questions to Ask Before Award Performance Begins

 

Before the award begins, ask:

• How will we receive funds?

• Are payments advanced, reimbursed, invoiced, or milestone-based?

• Who has access to the payment system?

• What support is required for each request?

• When is payroll due?

• What partner payments are due?

• Are large vendor purchases required?

• Are indirect costs being recovered properly?

• How much working capital do we need?

• What costs are not covered by the award?

• What happens if payment is delayed?

• How will we monitor burn rate monthly?

These questions help the company move from award approval to award performance with stronger financial visibility.

 

Final Thoughts: Cash Flow Visibility Helps Protect Award Performance

 

SBIR/STTR awards can provide valuable funding, but awardees still need to manage the timing of cash.

 

Payroll, subcontractor payments, vendor costs, indirect cost recovery, reimbursement timing, burn rate, and working capital needs can all affect whether the company can perform the work smoothly.

 

At Peter Witts CPA PC, we help SBIR/STTR companies build cash flow visibility into award management so leadership can see funding gaps early, plan around payment timing, and make better financial decisions during performance.

 

Need Help Improving SBIR/STTR Cash Flow Visibility?

 

If your company is managing an SBIR/STTR award, Peter Witts CPA PC can help review your award payment process, budget-to-actual reports, burn rate, payroll timing, subcontractor payments, indirect cost recovery, reimbursement support, and working capital forecast.

 

Backed by 35+ years of government contract accounting experience and first-hand DCAA knowledge, our team helps innovators manage the financial side of federal funding with clarity, compliance, and confidence.

 

Schedule a strategic consultation with Peter Witts CPA PC to improve SBIR/STTR cash flow visibility.