Possibilities: R&D used to demonstrate ongoing appreciation in a tangible way

possibilities story

As the CFO of a mid-sized mechanical engineering firm just outside of San Antonio, Texas, I’m always on the lookout for ways to boost our bottom line. And while many of those efforts tend to focus on things like driving sales, increasing efficiency or bolstering profitability, I also spend plenty of time seeking out new ways to save money – to find money in places where we never thought to look before. 

It is this latter quest that inspired my team to work with the R&D professionals to explore an option that we hadn’t really considered in the past – federal and state research and development (R&D) tax credits. And for this fourth-generation, family-owned company, the qualified research expenses we uncovered resulted in the kind of tax savings and enhanced cash flow that could prove to be a true game-changer going forward.   

San Antonio Texas
Mechanical Engineering Firm, San Antonio Texas
“Why hadn’t we thought of this before?”

That was the consistent reaction throughout the firm as we learned more about the availability of R&D tax credits for companies like ours. Maybe we were operating under a long-held assumption that R&D is limited only to places like large software companies or medical research laboratories, but it turns out many of the design and development activities that we’ve been doing here for the past 50 years qualify as well – including things like improving HVAC and lighting systems, testing new materials or technologies, and incorporating environmental and sustainable design elements into our projects.

These are just a handful of our everyday activities that figure into the R&D discussion, but until we started looking into it further, we just saw them as business as usual – we never really understood the potential tax savings that they represented. The team helped us dig deeper into the fundamentals of our business activities to find the credits that might be available and to test them against the IRS requirements for claiming them. We’ve been fortunate to have enjoyed great success throughout our long history, but this really opened our eyes to the possibility of reaching another level as a firm.

As a CFO, of course, all the discussion of potential was nice, but it didn’t mean much until I saw what it meant for our balance sheet. With the help of the R&D team, we uncovered $19,887,322 in qualified research expenses (all of which, again, came out of activities that we were already doing) that ultimately translated into $1,175,120 in first-year tax savings.

Almost $1.2 million in savings? That’s the kind of number that gets my attention. And it’s the kind of money that has allowed us to undertake several projects and initiatives that we might not have otherwise. For example, we recently upgraded and expanded our main facility in the San Antonio area, reinvesting in new machinery and equipment to help modernize our operations and remain competitive in the marketplace. We were also able to obtain the resources we needed to branch out into several new specialty project areas that have long been under consideration.

Perhaps our most significant outlay, however, was in the renewed commitment to our outstanding workforce through merit raises and performance bonuses across the company. We know how important these men and women have been to building and maintaining our reputation in this industry and in this community, and we’re happy to be able to demonstrate our ongoing appreciation in a tangible way. And it’s been particularly important to be able to do this now. During a period when a shortage of talent is plaguing so many organizations (including many of our direct competitors), it’s great to have the financial wherewithal to do everything we can to hold on to the terrific people we already have on staff. 

But this is really just the beginning. Based on our experience in this first year, our plan is to continue seeking out additional R&D tax credit possibilities going forward, hoping to match or even exceed the savings we were able to uncover this time around. This is something we feel we’ll be able to build into our budget in the years to come to help fund some of the ambitious strategic growth plans we have in mind, which include taking on larger-scale projects and possibly expanding into several new markets. 

As a veteran employee (20+ years) who has been through the good times, the bad times and everything in between here, I can say without a doubt that R&D tax credits really do have the potential to be a long-term game-changer for our company. And to think – it was an opportunity we were sitting on all along.


Mark Loehrke

Mark Loehrke

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