12TH AUGUST, 2022

Guest post: Business a little risk averse? Tips to better manage the innovation gamble

Article originally written for our partners Companies Digest.

Innovation and risk go hand in hand; you can’t have one without the other. But in these times of narrow margins and irreplaceable brand reputation, jumping into a risky new innovation project can feel seriously overwhelming.

There are however several practical steps your business can take to reduce that risk. Here we take a look.

1. View it as a chance for positive change

Avoiding risk is part of the human condition. But only by embracing risk can creative innovation really take place. By putting ourselves under pressure, solving problems and coming up with solutions we truly move ourselves forward. The same is true in business.

Breakthroughs occur when businesses push themselves beyond their comfort zone; this is an opportunity, not just a risk. And of course, knowledge is never wasted even if the project itself ultimately drifts off course or breaks down altogether. Yes, risk needs to be balanced and not reckless, but avoiding it altogether isn’t sustainable either.

2. Expect the unexpected

Even with the best planning, time, resources and all the cash in the world, sometimes the best laid plans fail. At any point things can go wrong in an R&D project and frequently do - it’s how these challenges are approached and resolved that matters. In fact, more can be learned through R&D that’s gone awry than from a journey of discovery that went smoothly from start to finish. 

3. Stamp out the biggest risks first

It’s tempting to tackle the smallest, easiest challenges first and put the bigger stuff on the back burner for later. But planning to address the biggest risks first, or even mitigating them altogether, is always time well spent. In fact, it may well prevent the total derailment of the R&D project later on.

There’s a phrase that’s a common saying amongst entrepreneurs and that’s “Fail fast, fail often”. It’s an exciting time when a project first kicks off but taking a step back and assessing the most significant challenges first can save huge time and money further down the road.

4. Never see risk management as a one-time thing

Risk management isn’t just a tick box exercise or something you tackle once; it’s an ongoing process. Once an R&D project is complete, there are always more ways you can be proactive. Risk management strategies need to continue, helping the business to better navigate unforeseen problems in future. After all, even when a product has launched onto the market, there will still be a process of developing new features, accessories and upgrades for it.

Breathing a sigh of relief once an R&D project is done may feel good, but resting on your laurels long term makes poor commercial sense. Constantly assessing innovation risk and how it will be managed is never a one-off exercise. There needs to be ongoing commitment if research and development is going to become part of the furniture.

5. Protect your intellectual property

Sadly it’s far from uncommon; an entrepreneur comes up with an incredible never-seen-before invention only to find they’ve had their ideas stolen by a third party. This is why it’s so crucial for businesses to protect all of their business assets - intangible ones too, not just equipment and infrastructure. These intangible assets include intellectual property (IP) rights and patents which may also attract Patent Box tax relief.

Admittedly it’s not always easy to quantify business assets that you can’t see or touch. But without the proper protections in place ideas are easily sold on leaving businesses millions out of pocket.

6. Claim financial assistance towards the costs (including R&D Tax Credits)

Innovation is vital if a business is to survive and thrive, but R&D work generally doesn’t come cheap. However, the good news is the UK government has for many years encouraged companies to invest in innovation and growth, in turn bolstering the wider economy. Various tax incentives and grants now make up the tapestry of supports that can go a long way in helping companies meet their innovation costs.

One particularly popular way of funding innovation is through incredibly generous R&D Tax Credits. Having launched back in the year 2000, the scheme allows companies investing in relevant R&D projects to claim back a size proportion of the costs - up to 33% in fact. Eligible R&D expenditure is reimbursed either via a reduction in their Corporation Tax liability, or - for loss-making companies - as a cash payment.

Government statistics show as much as £7.4 billion is claimed in R&D tax relief each year. How much a company can receive in R&D Tax Credits depends largely on its size and whether any claim for previous state aid has been made. This decides whether the company should claim under the SME branch of the scheme, or RDEC. However, with as much as 33 pence for every £1 of qualifying R&D costs reclaimable, R&D Tax Credit awards can soon run up to tens of thousands of pounds. It’s money that can be ploughed into further innovative work, building upon the company’s innovation strategy and promoting growth.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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