Research and development for SMEs: what you need to know

From developing your USP to boosting market competition, R&D can be the difference maker for your small business. Here’s how…

25 January 2019

Far from being confined to the world of big corporations, research and development (R&D) can be utilised effectively by small businesses as a way to increase their own profile in their market. It might seem like smaller organisations are at a disadvantage when compared with the major players, but research and development provides SMEs with the necessary opportunities to get ahead.

Through effective R&D, small businesses can differentiate themselves and their product and theoretically lead the market with the proper planning. Here, we’ll delve into the key advantages of R&D, as well as how businesses can source income through grants and government R&D tax credits.

What are the advantages of R&D?

Creation of unique selling points

If you’re looking to stand out in your market, then R&D can highlight your competition and help you develop unique products and services to set you apart, or strengthen existing products within your current business offering.

Increased Income

Through the unique products and services you’ve fostered as part of your R&D projects, you should see an increase in your long-term income as a result. Whether it’s new or enhanced streams or through attracting potential new investors to the business, a strong, properly-developed product can lead to increased income.

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Opportunities for increased funding

As hinted at above, corporate investors become interested in companies attempting to become industry leaders. By working on technologies and solutions, you open up the possibility of working your way into new markets. This is when investors may come knocking, eager to supply you with the financing to help you reach your goals.

Additionally, the new technologies developed by the company and the doors they open might bring qualified, talented employees into the fold as a result.

Tax relief

You can claim R&D tax relief as a means of reducing your company’s tax bill. Alternatively, you can choose to receive a tax credit through a cash sum paid by HM Revenue and Customs, although only qualifying R&D expenses will be considered for the purposes of tax relief.

Gain the competitive edge

Through R&D, you increase the chances of gaining an advantage over your competition and turn yourself into a market leader in the process. Obviously, the exposure you’ll receive increases, but a knock-on effect of your new products is the intellectual property you can generate which could further benefit you from a financial perspective.

Increased collaboration

Like many projects, R&D affords plenty of opportunity to collaborate, whether it’s with other teams, companies or universities. The transfer of skills and knowledge, as well as access to new facilities and external expertise is an undeniably attractive proposition.

Reputation

Through this collaboration, as well as effective marketing strategies that go towards your new product, the word-of-mouth exposure you may receive could mean you stand to earn a boost in your reputation too.

Reduced manufacturing costs

R&D is an effective way of uncovering cost-effective manufacturing methods in order to reduce productions costs. The new ways of manufacturing your products could reduce the costs of bringing it to market, leading to a significant increase in profit margins.  

If you can perform in a way that your rivals can’t replicate, it’s easier to outpace them and lead the market, too.


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How can I get funding for R&D?

Fast growing businesses will require capital to propel R&D projects forward. Thankfully, there are plenty of grants, as well as R&D tax credits out there to help make this possible; and what’s more, they aren’t mutually exclusive so you can combine the two for even further growth.

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R&D Tax Credits

All their core, R&D tax credits are a government incentive designed to reward UK companies for investing in new products and services. Any company that spends money developing new products, processes or services, or enhances existing ones, are eligible for R&D tax relief. There’s plenty of scope for research and development too, with every sector eligible to receive the credits. The R&D criteria set out by HMRC is deliberately broad to benefit as many businesses as possible, regardless of size or sector.

The other eligibility criteria includes the business’ status as a limited company in the UK that is subject to Corporation Tax, carrying out the necessary qualifying R&D activities, and spending money on these projects.

R&D Grants

If you go the route of an R&D grant, then it’s important to consider your eligibility first. While each body will have their own rules for eligibility, generally there are some broad questions to ask yourself before applying.

  • Do you have a long-term strategy for your technology or business?
  • Can you demonstrate that your project delivers value for money and would clearly benefit from the funds the grant proposes?
  • Does your business have sufficient funding to invest in the project and be able to continue trading during the project period?
  • Can you clearly demonstrate the market opportunity and how you plan to exploit it?
  • Do you have a credible team to implement the project?

If you can justify all the above, you may be eligible for an R&D grant. From here, you’ll be able to progress a project with huge potential for short-term gains and long-term success.

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The views, opinions and positions expressed within this article are those of our third-party content providers alone and do not represent those of Gazprom Energy. The accuracy, completeness and validity of any statements made within this article are not guaranteed. Gazprom Energy accepts no liability for any errors, omissions or representations.


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