Digging for dollars: Funding innovation for SMBs
June 15, 2006
By Paul Hogendoorn
Many manufacturing companies fail to take advantage of valuable incentive programs designed to stimulate innovation and R&D activities. In effect, these manufacturers are leaving thousands of dollars off of their bottom lines every year, or even worse, failing to properly position or equip themselves to remain competitive in the increasingly challenging years ahead.
Common excuses are that they are too busy to keep up-to-date with all of the programs available, or that the red tape and bureaucracy are too cumbersome and add more administrative overhead than they are worth. If you recognize yourself or your company as being in this category, then perhaps it’s time to take another look.
This column and this publication have frequently echoed the sentiment that the survival of Canada’s manufacturing industry will be closely linked to innovation – either the creation and development of innovative products or the continued innovation of the actual manufacturing processes that help us remain competitive with the low-cost manufacturing regions across the globe. Although it’s the primary responsibility of each company to develop or refine new products or processes, our federal and provincial governments have provided additional incentives to encourage investments in these critical areas.
The Canadian government’s primary mechanism for supporting research and development in Canada is a tax credit program commonly referred to as “SR&ED ITC” (scientific research and experimental development industry tax credit). This program has been around for quite a while and is frequently lauded by actively participating companies as a significant benefit and motivation to do research and development work in Canada. However, there are far more companies that could be, and should be, taking advantage of this program than currently do.
To many companies, R&D is a department that they believe they do not have, so they assume that they do not qualify for the program. However, as far as the SR&ED ITC is concerned, R&D is an activity, and it can comprise either research work or development effort, and the effort can be on developing or improving a product, or developing or improving a process.
Depending on your company’s size and profitability, the tax credits can be significant and should not be overlooked. (In this case, bigger is not always better, since this program is designed to favour small companies.) A publication that provides a good introduction to the program is available from the Canadian Revenue Agency’s website.
Canada’s National Research Council-Industrial Research Assistance Program, or NRC-IRAP for short, is an innovation assistance program aimed specifically at small and medium-sized enterprises (SMEs). The NRC-IRAP’s mandate is to stimulate wealth creation for Canada through technological innovation. They have a variety of programs and services (which can be checked out at http://irap-pari.nrc-cnrc.gc.ca/), including two that could have an immediate impact on the current year’s bottom line, while at the same time better positioning the company for the future.
The first such program could provide non-repayable contributions to Canadian SMEs intent on growing their companies by using technology to commercialize services, products and processes in Canadian and international markets. A second such program is part of the Canadian government’s Youth Employment Strategy. In this case, funding may be provided to help SME companies hire recent post-secondary graduates with valuable skills and education. This program, properly applied, is a win-win-win scenario: the company gets a subsidy to hire a skilled person they might not have otherwise been able to afford, providing both an immediate benefit and a continuing benefit as the new skills get beneficially deployed and utilized; the graduate gets valuable work experience, likely more diverse and with an accelerated level of responsibility and contribution than if employed by a larger company; and the government achieves its objectives of creating new opportunities for skilled and educated young people, as well as supporting and encouraging the growth of SMEs (and inevitably increasing its tax revenue from these growing companies).
There is undoubtedly an extra level of administration associated with any such program. This can be a deterrent to smaller companies that regard the reporting requirements as “invasive” or “bureaucratic,” or believe it slows them down and gets in their way of being responsive to new opportunities or changing conditions. But, if these same companies are intent on growing or attracting funding from other sources, many of these same monitoring and reporting requirements will have to become an inherent part of their normal business practices, so they may as well consider the added administrative obligations as just another step in their company’s growth and development.
If you think that R&D is simply pushing the boundaries of science or the creation of new technologies, then it is time for you to rethink your definition of R&D. If your company is developing a new product or process, improving existing ones, developing new tools or technical procedures, extending a product line, exploring doing things better or cheaper, or trying to meet regulatory requirements, one or all of the programs briefly described above would be worth seriously investigating.
With the unrelenting challenges that manufacturers face to reduce prices, improve quality, reduce lead time and improve their product’s competitive performance, it is hard to imagine any company not looking at R&D activities as a critical part of its survival or growth strategy. The Canadian government is willing to help support or encourage this activity with these and other such programs. You may as well take a fresh look and see.
Paul Hogendoorn is president of OES Inc. and chair of the London Region Manufacturing Council. He can be reached at email@example.com. For more information about the LRMC, visit www.manufacturinglondon.com.