The Importance of Research and Development
How R&D can improve your business while taking advantage of the research and development tax incentive.
Research and development is better known by its acronym – R&D. R&D is crucial in many industries in today’s highly competitive, fast-paced, ever changing and increasingly global business environment. It can help businesses to survive and thrive, as well as enhance the lives of consumers.
What is R&D?
R&D includes any business activities that focus on innovation to:
- develop new products or services.
- improve the features of existing ones.
- come up with more efficient ways of doing things.
When done well, R&D can lead to a business being eligible to apply for patents or register designs for the product, service or process innovations they develop. R&D can therefore help an organisation to develop valuable intellectual property (IP) assets.
The benefits of R&D
R&D has benefits for both businesses and consumers. We’ll look at each of these in turn.
The benefits of R&D for businesses
- When a business uses R&D to innovate successfully, this can create a competitive advantage in the market. This competitive advantage can be sustainable for several years if the business is successful with a patent application or a design registration with IP Australia. IP Australia is responsible for granting intellectual property rights and administering IP legislation in Australia. They also work collaboratively to protect Australia’s IP interests internationally.
- R&D can help your business to produce your goods and services more efficiently, increasing your profitability.
- Investing in R&D can enable your business to market itself as an innovator in your industry, helping you generate new clients and retain existing ones.
The benefits of R&D for consumers
Consumers can benefit from R&D spending in several ways, including access to:
- new and innovative products and services.
- improved products and services (for example, enhanced features).
- cheaper products and services when R&D enables technological innovations to bring production or delivery costs down.
R&D helps to keep businesses competitive
Many Australian businesses in varying industries are doing it tough at the moment due to the economic impact of COVID-19 restrictions. Tough economic conditions can make R&D even more crucial for Australian businesses to remain competitive. According to the latest report from Austrade, countries such as the US, the UK, Singapore and New Zealand have recently announced large R&D stimulus programs for local businesses to boost their economies. Global R&D spending is now $3.08 trillion per year.
Many economies around the world implemented a similar R&D strategy to navigate their way out of the global financial crisis more than a decade ago.
Funding for R&D
There are options available for Australian businesses to fund their R&D activities. They include:
The federal government’s research and development tax incentive. This incentive enables eligible R&D costs to be claimed as a tax offset to reduce the amount of tax you pay on business income. The R&D tax incentive has been increased from the start of the 2021/2022 financial year and beyond as part of the federal government’s response to COVID-19.
- If your business has an annual turnover of less than $20 million, the research and development tax offset is your company tax rate plus 18.5%.
- If your business has an annual turnover of greater than $20 million, the R&D tax offset is your company tax rate plus between 8.5% and 16.5%.
The exact amount depends on your level of R & D expenditure.
Working capital
If your business has enough working capital, it can be invested in R&D activities to improve efficiency and increase business output. However, when you use working capital, you can reduce the available liquidity that may be needed to manage day-to-day business expenses.
Business Financing
Leveraging business finance can provide the cash management solution necessary to keep on top of your expenses while dedicating enough resources to focus on research and development.
At Earlypay, we have a range of flexible financing options that can help. These include:
- Invoice Finance
Invoice Financing (also known as Debtor Financing) helps you turn your unpaid or outstanding customer invoices into a source of readily available funding. Rather than waiting weeks or even months for payments, you can immediately access up to 90% of business's invoices. Those funds can then be used to invest in R&D activities.
- Asset and Equipment Finance
Having the right assets and equipment can be critical to the success of your R&D Program. However, buying equipment outright and upfront can be expensive. For many SMEs, this can put a strain on cash flow. This is where asset finance can be a valuable solution. You can purchase the equipment and assets you need without sacrificing cash flow or working capital.
If you'd like to learn more about how Earlypay can help you invest in R&D with our invoice financing, or equipment finance, please call our friendly team on 1300 760 205 or contact your broker or BDM.
