Specialist R&D Tax & Grant Funding Advisors

5 Ways Entrepreneurs Make Money From Their Inventions

There are numerous ways to make money from an invention, whether you’re improving a product or launching something new.

Barrie Dowsett

Chief Executive Officer


5 minute read

It’s worth doing your homework

Unfortunately there aren’t any shortcuts to making money from an innovative idea. But there are certain steps entrepreneurs can take to steadily maximise their financial growth. Here we look at five of the best.

1. Focussing on strategic innovation

Most companies don’t actually offer their customers a product or service that’s completely new. True disruptors tend to make the most money (if done well) but that doesn’t mean you have to explode onto the scene with something never seen before to make a profit. Many businesses take something that customers already need and want and improve on it. In plain terms, they strategically innovate.

To make a success of strategic innovation a business needs to have a firm grasp on who their customers actually are and why its products or services are needed.

Take the iPhone for example. When the iPhone was launched back in 2007, mobile phones weren’t a new thing. Most people were happy with their phones; they could make calls send texts and most even had cameras. But Apple saw how they could capitalise on the “best bits” of what was already out there and improve it – not least through mobile internet access. When the iPhone was born it totally revolutionised the telecoms market.

It’s not an easy thing to do, but if achieved can put a company light years ahead of its competitors - with profit margins rising accordingly.

Don’t forget too that innovative R&D work involving an advancement in scientific or technological knowledge may well attract valuable R&D Tax Credits.

2. Franchising

Franchising is where a third party sets up and manages their own business, but using another brand’s logo, products etc. The primary company supports the franchisee where required and in return they receive a fee (normally a percentage of turnover). Popular candidates for franchising include food delivery businesses and restaurants.

The import thing is that the products and/or services are exactly the same across each franchise with no change in appearance or quality. Bear in mind though that franchising is perhaps not the best model if the business only has a geographically restricted market or short-term sales potential.

3. Prioritising growth

A business will only thrive and make a profits through a continuous programme of growth. All areas of the company need to be on board with the concept and why it’s so important. This is the case right from management level down to individuals working on the shop floor.

Crucially, growth needs to make up the very fabric of a business, but there are a number of way of achieving this. Hiring fresh, innovative talent is one way, coupled with a good range of incentives. It’s vital that that the people working for a business believe it in 100% and have a vested interest in its continued growth.

Once the strategy for growth has been ascertained, a successful entrepreneur will then look for ways to optimise expansion and bring about impactful changes.

Again, R&D Tax Credits may well come into play here.

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4. Licensing intellectual property

The last thing any entrepreneur needs is someone else ripping off their ideas and churning out “lookalikes”. Often such replica products are of poorer quality or cheaply made, which can damage a brand irreparably.

Licensing is where a business sells the rights to its copyrighted or patented inventions to a named licensee. That licensee then pays the company royalties in return - usually a small amount per sale.

Patents are certainly a useful tool, but they only last a maximum of 20 years. This makes licensing intellectual property worthwhile, as it’s better to receive a small amount per sale than making no money at all after the 20 years have elapsed.

A point to note here is that not all licensing agreements are the same, and which one a business chooses can depend on several factors. For instance, a business may decide license its IP so that other businesses have the right to exploit it in a particular geographical area where it then agrees not to compete. Alternatively, many businesses opt for a sole licence, allowing them to exploit their IP in the same region as the licensee. However, they cannot then grant any additional licenses to any other enterprises operating in the same market.

5. Achieving tax relief via the Patent Box scheme

Too many people still haven’t heard of UK Patent Box relief which is a huge missed opportunity as it’s in fact extremely generous.

Originally starting life in April 2013, the UK Patent Box regime is designed to encourage companies to retain and commercialise existing patents, and to innovate new products. It works by taxing the profit brought about by eligible patents at a preferential 10% rate. It’s a substantial saving on the standard Corporation Tax rate of 19%.

Although the Patent Box scheme has been around for eight years now, a number of areas were amended back in July 2016. However, despite these changes grandfathering arrangements are still set to apply until the 30th June this year.

The biggest change meant adding a link the company undergoing the R&D and the patent on which the relief is being claimed. Additionally, some extra administrative requirements have been added when calculating the relief claimable (this is something our team will be pleased to advise on).

One particularly advantageous angle to the relief is that it applies to profits made from the sale of the product anywhere in the world. This is even true if only a small part of the total product is patented. It can also apply where additional conditions have been put on a patent, although there are some further conditions to meet (again please do contact us to discuss how the Patent Box relief in its current form may affect you directly).

Ready to discuss tax reliefs and funding for your innovative company?

From R&D Tax Credits and grants to Patent Box relief, Capital Allowances and VGTR, the expert team at Myriad Associates has all the tax and funding knowledge needed to push your innovative business forward.

Get in touch by dropping us a message, or calling 0207 118 6045. We’re proud of our two decades’ experience in this complex area of accountancy and will assist you in putting together a watertight claim.