The R&D grant is a great source of funding for small businesses and start-ups. For those eligible to get a grant paid in cash (less than $20M in revenue + in a tax loss position) it effectively means that money you spend on innovation and building new products is 43.5% cheaper. The cut-off date for the 15/16 financial year is the 30th of April.
Here are some practical tips about the scheme.
Get your books in order. You need to do your tax return at the same time as the grant application. Make sure your bookkeeper or your accounts team are keeping up to date with your accounting. Its best to get your grant in as close July 1, the first few months after the financial year are a quieter time for AusIndustry. Getting the application in around July / August will likely mean you get your cash by September / October.
If cash is tight, it may be a good idea to have a development sprint at the back end of the financial year. You could ramp up headcount in say February or March or bring in an outsourced development team to complete a sprint. This will reduce the time between when the money goes out and the grant is paid the following financial year.
The first application you put in is rather painful, but once you have done one application the process is simpler as often the projects are a continuation of the year before.
The application is technical. AusIndustry (the government body who approve the grants) are very particular about how the grant is written, each project your claiming for needs to demonstrate technical risk. Technical risk means that there is uncertainty that the activity your investing in will have the desired outcome. The language needs to be structured like a science experiment with a hypothesis, learnings, outcome and the commercial application of the technology. Unless you’re a scientist or someone who is versed in tax law, you need a professional to do it.
For companies that are close to the end of their runway, there are finance companies that will pre-fund your R&D grant. It will cost you circa 20% of your grant but for those who are running out of cash, it may be a way to stay alive.
Most of the big accounting firms charge on a percentage basis, usually 12% to 18% of the grant received. Once they have done the first application, the following applications are fairly easy and AusIndustry doesn’t scrutinise the application as deeply as they do on the initial application. I don’t think it is great value for money to use the big guys. There are some smaller accounting firms which will do R&D applications on a cheaper fixed fee basis. I know of one that does it for $8K to $10K flat. Which on a $500K grant would save you $50K vs the 12% pricing model.
Offshore development costs are not eligible for the grant. When you factor in the 43.5% discount on any Australian development work, are the cost savings of offshoring worth the extra complexity and risk vs an Australian based team?
The grant is a fantastic initiative to give disruptors and innovators a fighting chance of growing and thriving. For pre-revenue companies or those with significant burn rates the grant can mean the difference between life and death.
Email me on email@example.com if you would like me to introduce you to a start-up friendly firm with very reasonable R&D grant pricing.
CFOs on demand provides outsourced financial support to startups and SMEs specialising in performance & planning, strategy and assisting with cap raises.