The ASK MIKE column provides access to questions & answers from finance and small business expert Michael Gonnerman. Mike has served as a trusted advisor to hundreds of technology CEO’s and investors as well as served on more than two dozen corporate boards. The ASK MIKE column contains a mix of current as well as classic Ask Mike Q&A.
What kind of ‘overhead’ can we charge?
“Is there a formal accounting definition of ‘costs’ for cost-plus contracts? My CEO wants me to pile on all kinds of overhead expenses that I feel are excessive, but I don’t have any contrary evidence for a more conservative approach.”
Mike: Typically, these rules are spelled out in the bidding process or in standard contracts, to minimize this kind of ambiguity. (For instance, most government contracts cover the cost-plus question in pretty painful detail.) I’m guessing that you’re dealing with an inexperienced or lazy customer who failed to provide guidelines up front. Your problem isn’t just with your CEO–you also have a potential here for a fight with the customer over getting paid for any poorly-defined overhead costs.
Your best bet at this point is to refer back to the cost calculations you presented in your original bid, which presumably the customer approved. When you send an invoice, report your overhead expenses with as much detail as possible, and describe these line items using the same language as the bid or contract. This approach should minimize disputes with both your CEO and the customer.
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