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4 Ways to Fund your Business

by | Jun 27, 2018

 

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We are often asked if there are options to help fund the growth of a business. If you innovate, then the answer is yes!

 

Let’s take a look at some of the options:

 

1. R&D tax credits

 

Research and Development credits (cash back associated with the tax paid on development work!) are available in a surprising number of countries now, almost 20 at the time of this writing, including Austria, Belgium, Canada, Denmark, France, Ireland, The Netherlands, Spain, UK and even the USA.

 

These are claimable even if you are recording losses, but are still innovating or developing new products.

 

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The main criteria to qualify is quite straightforward – do you have any ‘technological uncertainty’ in your work? This is an extremely wide ranging criteria, and can apply, for example, to law firms developing in-house software to help with their internal processes, and to engineering firms taking new orders that require an iteration or two before the final product is ready to be mass-produced.

 

We talk to many engineering firms and software houses in particular which do not realise that they can make these claims.

 

And, are the claims difficult? Not really.

 

If you do not have the time to do the claim yourself, don’t rely on your accountant! For the first time, use someone with a technical (engineering or science) background who will work on a ‘no win/no fee’ basis.

 

With a technical background (which is the last thing an accountant has!), he or she will be able to drill down into the detail of your work to maximise your claim.

 

It can also be back-dated a couple of years.

 

And, it can be claimed annually.

 

After the first claim, if you then feel that you want to handle it yourself, you can crib the first claim.

 

Please feel free to ask for more information regarding these R&D tax claims, they are really are a no brainer to help fund your business growth.

 

2. Patent Box

 

 

The ‘patent box’ is still a relatively well-kept secret. For some reason, accountants still do not seem to be telling their innovative clients about this potentially lucrative tax reduction scheme.

 

In short, if you create an innovate product which is patented in at least one qualifying country, you can then claim 50% of your corporation tax back on worldwide sales of that part.

 

And, even better, if the patented item forms part of a larger product, the 50% corporation tax cut can be applied to the entire larger product!

 

For example, if BMW creates an improved air intake for the engines of their cars, and successfully patents it, then they can apply for a 50% company tax rebate on the entire vehicle that the air intake is used on.

 

And, better still, the tax cut is for worldwide sales of those BMW vehicles.

 

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Similarly to the R&D tax credits above, nearly 20 countries currently operate a Patent Box system or similar.

 

But, isn’t patenting something difficult and long winded?

 

Not necessarily, if you use some strategy!

 

With your patent attorney, by understanding what you actually want to achieve, he or she can tailor the patent specification to limit the likelihood of objections.

 

And, particularly in the UK, it is simple to accelerate the patenting procedure. The quickest I have had a patent granted to date is 7 months from first filing.

 

Please feel free to ask for more information, if this is of interest.

 

3. Kickstarter

 

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This is popular peer-to-peer funding platform that many have now heard of. There are also plenty of copycat platforms providing a similar format. 

 

With Kickstarter, you prepare your pitch to show the public your idea, the prototype, and the envisaged final product, and in return, the public can ‘pre-purchase’ the product before it’s actually ready. This pre-purchase funding then allows the creator to fund the actual building of the product.

 

So, what are the issues?

 

Firstly, many of the people who choose to fund a cool innovation do not realise that it is an investment, and not a sure fire purchase. As we well know from the various stock exchanges around the world, investments may decrease. It is a gamble. And Kickstarter is no exception. Many of the projects do not come to fruition or do not meet the minimum finding level required to release the capital to the creator.

 

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Secondly, a main reason that creators do not succeed in meeting their funding targets is that they do not know how to market their idea.

 

This is where a company called Funded.Today (www.funded.today) comes to the rescue. Although they will take a whopping 35% of the finally pledged amount, their expertise is in leveraging social media so that your Kickstarter pitch gains the traction that it needs. With that exposure, you are more likely to achieve and surpass the funding that you need.

 

Funded.Today has raised nearly $200 million at the time of writing, so they are definitely on to something.

 

Just remember, you need to have decided whether or not to patent your idea, and to have patent pending status for your creation if you are going to protect it, before you go live on Kickstarter. Follow this general rule of thumb, and you will not go far wrong. This is critical in most parts of the world.

 

4. Equity Release

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Finally, let’s look at equity release.

 

Some banks (or their subsidiaries) are now able to take ownership of your intellectual property as security on a loan. Effectively, you are releasing equity in your patents and trademarks.

 

This is an interesting concept, and if you already have a patent portfolio plus are active in developing product, it is a potentially easy way to access relatively short term funding.

 

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Lombard Technology Services, for example, will base a loan on your R&D tax credit claims (see number 1 above) along with taking ownership of your intellectual property. Once the loan is repaid after an agreed, typically three to four years, period with a small amount of interest, the IP (patents, trademarks, designs, etc) rights are re-transferred back into your ownership.

 

Please feel free to ask for any further advice regarding any of the above options, plus other options that may be available dependent on your circumstances. Our passion is to see you succeed.

Author

  • Adrian Hocking

    Adrian is a Director, as well as a qualified Engineer and an experienced British and European Patent Attorney. Adrian relishes the challenge of obtaining potent and robust patent protection in the UK, Europe and worldwide. Having dealt with over 900+ European patent applications, not to mention all his British and US patent experience, Adrian enjoys advising his diverse international client-base in all aspects of intellectual property law. LinkedIn: Adrian Hocking

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