| || |
With a potential recession on the horizon, we know you want resources to help your business master the moment. We've put together our Agility & Excellence Resource Center to bring you strategies and solutions with a finger on the pulse of what's ahead.
Amid an economic downturn, where uncertainty reigns and financial stability is the top priority, it may seem counterintuitive to invest in research and development (R&D). But while cost-cutting measures may provide a temporary reprieve, investing in R&D can be the key to unlocking long-term success. It may seem like a risky move, but investing in R&D during a recession can save money, offer potential tax credits and position a company as a formidable competitor when the economy bounces back.
In this article, we'll shed light on why R&D is a smart investment during a recession and how companies can navigate the R&D landscape to come out on top.
Enjoy Cost-Savings & New Revenue
Investing in R&D can be the ultimate cost-saving move for your organization. A company can boost its productivity, reduce expenses and increase profitability by creating new goods, procedures or technology. For example, imagine streamlining your manufacturing process, producing goods at a lower cost and higher volume, leading to increased sales and higher profit margins. Not only does it improve your bottom line, but it also positions your company as a leader in innovation.
In addition, developing new products or technologies allows you to tap into new markets and customer segments, leading to increased revenue. New revenue streams are critical during a recession, as many companies struggle to maintain revenue levels.
Apple is a prime example of a company that used an economic downturn to come out on top. During the dot-com bust in 2001, CEO Steve Jobs insisted on doubling down on R&D investing despite the tech industry's economic slump. The move allowed the company to introduce the iPod in 2003 and then transform history with the unveiling of the iPhone right before the 2008 recession.
Take Advantage of R&D Tax Credits
Cost savings and revenue potential aren't the only benefits of pursuing R&D during tough times. Companies that invest in such creative advancement may also be eligible for R&D tax credits. To encourage innovation and economic growth, the United States offers tax credits for qualifying R&D expenses incurred in the US. Several states also provide an R&D tax credit for efforts undertaken in their state, sweetening the pot even further during a recession.
It's important to note that your organization may have projects that already qualify for the R&D tax credits. The credit applies to many activities, including improving existing products or processes. To be eligible for the tax credit, a project must involve some level of risk and uncertainty and result in a new or improved product or process. If your organization has installed new equipment or incorporated new technology recently and had to make changes uniquely to your process, you may examine whether your situation qualifies
Earn a Competitive Edge
Another critical aspect of investing in R&D during economic instability is the ability to position your company for future growth. By developing new products, technologies or processes, a company can differentiate itself from its competitors and gain an edge in the market. Additionally, by staying at the forefront of innovation, a company can be better prepared to capitalize on new opportunities as the economy recovers. This is particularly important as the market shifts and evolves. Companies that have invested in R&D will be better equipped to adapt to these changes and capitalize on new opportunities.
It is also worth mentioning that investing in R&D during a recession can also have a positive impact on your company's reputation, making your organization more attractive to customers, investors and talent recruits. Making a significant commitment to advancing products or services through R&D demonstrates your organization is forward-thinking, invests in long-term planning and remains dedicated to valuing your customers.
How to Tackle R&D Costs During Tough Economic Times
Recessionary periods can present unique opportunities to drive innovation and stay ahead of the competition. By being strategic and resourceful, businesses can continue pushing the boundaries of what is possible and become even more vital when the dust settles.
Here are some tips to keep in mind when pursuing R&D during a strained economic outlook:
- Partner With Other Organizations: Collaborating with other companies or organizations can help split the cost of R&D and provide access to new resources and expertise, plus exposure to different markets and customer bases.
- Utilize Open-Source Technology: Open-source technology can provide a cost-effective solution for R&D, allowing companies to use and modify existing technology without incurring licensing costs.
- Outsource R&D Activities: Outsourcing some R&D activities, such as product testing or prototyping, can save costs by leveraging the expertise and resources of a specialized firm.
- Monitor Industry Trends: Stay informed about industry trends and emerging technologies, and invest in R&D initiatives that align with them.
- Prioritize R&D Initiatives: Identify the R&D initiatives that have the most potential for growth and profitability, and allocate resources accordingly.
No matter the economy's ebb and flow, investing in R&D is a way for companies to soar above the competition. It's the key to staying agile and innovative, even in the face of uncertainty. And when done right, it can lead to long-term success and a lasting legacy in the marketplace.
Furthermore, the R&D tax credit can be a valuable asset for your organization by helping to reduce taxes and improve your bottom line. However, it can be tricky to navigate the process and ensure you're claiming the credit correctly. Working with a tax expert can help ease the burden and optimize the credit for your organization.
If you're interested in learning more about the R&D tax credit and seeing if your business qualifies, please contact us.
Copyright © 2023, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.
CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).