From full-fledged CFOs to fractional supporters of early-stage teams, anyone who leads the finance arm of an innovative startup knows all too well that every dollar counts.
That’s why tapping into the Canadian government’s Scientific Research and Experimental Development (SR&ED) program is a key pillar of many startups’ capital strategy. At the end of the day, it really is free money, allowing teams to recoup a share of they made deriving truly unique innovation—and with very few strings attached.
Most importantly, it’s a return on your startup’s own investment. You’ll only get back money that you’ve risked investing to build your business and drive innovation. As such, you should be putting as much effort as possible into ensuring you’re getting these dollars back.
But accessing this vital capital isn’t as simple as checking the right boxes on tax forms, or even providing receipts to an accountant. The Canadian Revenue Agency (CRA) has detailed criteria to ensure that activities receiving funding tackle Technological Uncertainty through Systematic Investigation to ultimately unlock true Technological Advancement.
As a result, many financial leaders (wisely) choose a third-party partner to help them navigate SR&ED. Indeed, whether it’s a vendor or your accountant, you may already have a go-to for SR&ED.
However, the (multi)million-dollar question from there is, how do you know that your go-to is doing absolutely everything they can to maximize your claim? Or more specifically, at what point should you start re-evaluating your current SR&ED provider to ensure they’re still delivering on the needs of your business?
Annual reviews are part of a CFO’s due diligence
For starters, it’s on you to ensure that when you’re cracking open the books to map out your capital strategy—at EOY, BOY, or whenever—you’re maximizing your returns on all partner engagements. This goes for your SR&ED provider too.
Even if you’ve had no (noticeable) issues with your past year’s return, it makes sense to conduct a “post mortem” on your last claim before immediately accepting your provider’s services for the next year.
Of course, one of the main benefits of offloading SR&ED preparation to a provider is to avoid having to take a microscope to your R&D, let alone reverse-engineer your SR&ED filing or go through it with a fine-toothed comb.
But a lot can change in a year, especially in the world of startups. So it only makes sense to ensure your provider is keeping pace. Ask yourself:
- Has your current SR&ED provider taken into account your revised product roadmap or market pivot?
- Have they re-engaged with your product teams, or are they rinsing-repeating activities and claims from your previous filing?
- Did they provide a technical summary for your team last year?
Then, of course: Was your claim actually accepted out-of-the-gate? Or did your provider have to defend it—and how well did they ultimately do?
These are just a few of the points you and your team should consider as you kick off your evaluation. On that note…
Tips for successful SR&ED provider evaluations
Tip 1: Play the field
While it could be as simple as asking your provider some of the questions noted above, there’s also no harm in kicking the tires of a different provider to understand where you might be missing out. Even if you don’t engage beyond a discovery call, these interactions can be great opportunities to learn more about what’s changed about the filing process year-over-year.
Plus, if your current provider knows that you’re comparison shopping—even if you don’t realistically expect to switch—they’re more likely to put their unique value front-and-centre, and maybe even modify their rate to sweeten your existing deal.
That said, don’t just use a discovery call with a competitor as a bargaining chip. There is very real money at stake that could make-or-break your product roadmap, or at least extend your runway to weather unforeseen circumstances. Knowing where you could be missing out is a key part of the due diligence that comes with maximizing your claim.
Tip 2: Gauge your (relative) growth
Whoever is preparing your claim must be able to keep up with the momentum of your business.
For instance, you may have had to pivot the nature of your R&D as you’ve learned more about your market. As a result, the depth of technical research and experimental development your teams are embarking on may have grown, and your R&D teams may have expanded. All of this needs to be accounted for as your new SR&ED claim comes together.
Tip 3: Re-evaluate your provider payments
Let’s say your company has grown its product suite, hired more engineers, and as a result has grown its SR&ED claim from $100,000 to $400,000.
While your SR&ED provider’s workload will grow alongside the scope of your R&D, it may not make sense to hand over the same percentage for services year-after-year when your returns are growing exponentially.
Let’s say you locked in a flat rate of 15 percent when you first engaged. As your claim grows from $100k to $400k, the amount you hand over to your SR&ED provider will balloon in kind from $15,000 to $60,000. This isn’t to say that the work your provider does isn’t expanding alongside your R&D, but a sliding rate that takes into account the need to pivot your expenditures as your R&D evolves should enter the conversation.
A service rate percentage that decreases in accordance with increased R&D spend is still equitable for all parties involved. What it helps ensure is that you’re receiving the maximum return that you deserve on your expenditure based on the activities your team is hard at work executing.
This is important to bear in mind because your R&D spend may have grown (which increases your SR&ED refund in kind), but your total operating budgets may still be relatively tight. A flat rate could eat into critical funding at some of the most important phases of your product development, which could cause purse-tightening in other areas of the organization.
There’s always room for improvement. You shouldn’t have to miss out.
Funding a robust R&D operation is critical to creating solutions that not only stand out in the marketplace, but deliver truly unique innovation. You should be partnering with a SR&ED provider that shares that same ethos.
At Boast, we take a tiered approach to pricing that ensures you’re always maximizing the value of our services. We understand that your SR&ED return isn’t a payday: It’s necessary capital to build and extend your runway, and you need every dollar you can get. As your expenses grow and your SR&ED returns reflect that, we’re not here to lock you into a pricing model that limits your access to those vital dollars.
We’ve worked hard to engineer an AI-driven platform that enables our SR&ED experts—many of whom are founders in their own right—to create comprehensive, accurate and fully defensible claims. Indeed, our SR&ED experts are at the heart of everything we do. The unmatched experience and expertise of our team has helped thousands of customers across North America tap into the non-dilutive funding they need to fuel world-changing innovation.
Choosing a SR&ED Provider FAQ
- When should you re-evaluate your SR&ED provider? It’s a good practice to conduct an annual review of your SR&ED provider, even if you’ve had no major issues. Look at whether they’ve accounted for changes in your R&D activities, product roadmap, or company growth over the past year.
- What are some signs it may be time to switch providers? Red flags include your provider simply rinsing and repeating previous claims without re-engaging your teams, failing to provide detailed technical summaries, having claims rejected or struggling to defend them, and not evolving their pricing as your claim size increases.
- How can you evaluate potential new providers? Play the field by having introductory calls with other providers to see what additional value or expertise they may offer. Use this as an opportunity to learn about any process updates you may be missing out on.
- Why is pricing an important consideration? As your R&D spending and claim size grows, a flat percentage pricing model could become unnecessarily costly and eat into your funding runway. Look for providers willing to offer sliding rates that maximize your refund at higher claim values.
- What unique approach does Boast take? Boast uses tiered pricing to ensure you get maximum value as your claim size increases. Their AI-driven platform and technical experts aim to create accurate, defensible claims to unlock every available R&D dollar for your business.
Book a call today to learn what sets Boast apart.
To understand how to map an R&D strategy that maximizes your access to non-dilutive capital (and extends your runway), download our latest strategy guide.
