So, you’ve acquired a new business and you’re looking to integrate research and development into its operations. Or maybe you’re keen to capitalise on an existing culture of R&D in your newly acquired business. Whatever the context, one thing remains true: you’ll face some hurdles along the way.
That’s why, in this post, we’re looking at four problems you could face when acquiring a new business to help you ensure you’re acquiring companies with the appropriate desires and expectations in relation to all things R&D.
Loss of resource
Changes to workforce, team dynamics, department construction and job roles are far from uncommon in the early days of a new acquisition.
With this in mind, it’s important to understand what resources are being utilised in any existing R&D projects your newly acquired company is undertaking. Why? This ensures resources aren’t lost in the natural shake-up of a business acquisition - whether through key employees with unique and valuable knowledge leaving or failing to incorporate with a new team, or through partners and outsourced assistance being lost as a result of new business relationships.
Making sure you know what resources are valuable to company R&D efforts ensures there’s no knowledge gap created during the early stages of acquisition, enabling R&D projects to continue running smoothly.
Poor record keeping
Poor record keeping is one of the main enemies of a new acquisition’s R&D.
While formal financial record keeping isn’t a necessity for an eligible R&D claim, it certainly makes life easier for everyone involved - especially when you’ve only just come on board!
If the business you’ve acquired has been a little loose with recording their R&D expenditure to date, it’s going to take time for you to accurately gauge how much your company can claim back through R&D tax relief schemes.
In these instances, backdate what you can and integrate a more thorough recording process moving forward. This will not only help you to maximise the value of your claim by ensuring no cost is left unaccounted for, but will also help HMRC to cross-reference and approve your claim with less hassle.
A changing culture
It goes without saying that one of the hardest things to integrate and maintain during a business acquisition is company culture. If the business you’ve acquired lacks a culture of R&D, it may take longer than you’d expect to instil the right attitudes and mindsets for successful research and development.
If R&D was never a distinct focus of the previous owner, it’s likely employees will lack the understanding and mentality to immediately integrate an R&D mindset into existing processes, operations and approaches. In these instances, look to foster this culture through education and, where necessary, recruitment. This will ensure a strategic and optimised approach to R&D in future.
Valuation inaccuracies
If the company you’ve acquired had existing R&D projects in process, it’s likely this was accounted for in the overall business valuation.
The cost of an intangible asset is calculated at its ‘fair value’, accounting for the expected future economic benefits of the asset. In these instances, it’s important to understand that this ‘fair value’ was representative of the time of the acquisition, meaning that, if influential factors change, so too will the fair value of that asset.
With that being said, it’s important not to take the fair value acquisition price of any R&D as a guaranteed return price. Managing your expectations now will grant you the foresight to make adjustments where necessary.
If you’ve recently acquired a business and want to learn more about what R&D tax credits you could be entitled to, get in touch with Lumo today. We’re always happy to guide you through the process.