An interesting anomaly about government funding is that, on the one hand, it is such an attractive source of cash, but on the other hand the majority of eligible companies either don’t know it exists or don’t know how to access it.
Government grants can be simplified and explained in two points:
- The first being innovation and the second being assistance for bringing foreign revenue to Australia.
- The benefit involved in attaining government funding can be quite large and at times could amount to between 40 and 50 percent of funds spent on innovation or marketing in foreign markets.
The beginning of assessing innovation is quite simple. Ask yourself the following question: are you doing something different that you believe your competitors aren’t doing and that is new in the space?
If the answer to that question is ‘yes’ then the next step would be to consider the three basic principles of innovation grants. The three basic principles of innovation grants are: new knowledge, experimentation and uncertainty. These three principles all flow into each other. Let’s explain these principles using actual case studies.
New knowledge begins by identifying a gap in the market
A software company (Innovation Pty Ltd) had an idea to assess the food levels in a person’s fridge. Through the use of different cameras installed into a fridge, the homeowner is notified when certain food stocks in their fridge become depleted. Some web searches were done and the result was that there seemed to not be an off-the-shelf product available in the world that solves this problem.
An organic beverage manufacturer and formulator (Organics Pty Ltd) realised that the short shelf life of organic beverages is a limiting factor for exportation. Some web searches were done and the result was that there seems to not be an off the shelf product available in the world that solves this problem.
Innovation Pty Ltd put some of their developers on the project. The developers looked at many different methods of getting the product to work optimally. Mistakes were made along the way and valuable lessons were learned in order to arrive at a final operating product.
At this point, Organics Pty Ltd started developing a solution to fill the gap that was found. The development process required experimentation and different iterations of the product. The process is an ongoing process as Organics Pty Ltd is continuing to improve its findings in this area.
Both Innovation Pty Ltd and Organics Pty Ltd did not have certainty at the outset that these new projects were going to work. They did believe that each would be a success, but the final products were achieved through much trial and error. These final products are the items that filled the initial gap and are now the new knowledge that each company has brought to the world.
The main innovation grant available in Australia is the R&D Tax Incentive and this can be applied to all industries should the project be eligible.
Foreign revenue being brought to Australia
This avenue is simpler to explain than innovation grants. There is funding available for exporters who are spending money on marketing their products to foreign markets. Again, there are three basic principles – the first being an Australian product, the second being that revenue flows to Australia and the third being that marketing expenses are recognised in Australia.
The product needs to be either completely made, or the majority of it made, in Australia. If the products have an element made in a foreign country, for example, China, it could still be considered an Australian product.
Revenue flows to Australia
The revenue gained from the Australian products being marketed abroad needs to be recognised in the Australian entity. An entity need not have actual revenue in the first two years of applying for this grant.
Marketing expenditure being recognised in Australia
Expenditure spent on marketing to foreign markets needs to be recognised in the Australian entity. These expenses could include staff and consultants employed in the foreign country, flights, conferences attended, Google and Facebook advertising, websites targeted overseas, trademarks and patents, pamphlets and flyers made and free samples being given to enter a market.
The incentive described above is known as EMDG (Export Market Development Grant). EMDG offers up to a 50 percent grant on the expenses described above.
Statistics show that about 70 percent of eligible Australian companies either are unaware that they are eligible or simply do not know how to go about accessing the funding available. Best practice would be to consider the principles explained above and enquire as to a possible benefit and eligibility.
The author, Lior Stein, is the director of Rimon Advisory, a consultancy in government funding.