I had a meeting with a new client last week where we discussed an Export Grant situation that many startup company’s find themselves in.
The client had a product but the industry that they are in has a long lead time when it comes to getting a purchase order and the all important export revenue.
When we had a look at the potential expenses that we could claim, we found around $20,000 for 11/12 and around $70,000 for 12/13. For a first time applicant, this would mean that we were looking at a potential Export Grant of $40,000 ((($20k + $70k) – $10k) x 50%). Obviously $40,000 would be a very welcome contribution to their cash flow during the 13/14 financial year.
We looked at the potential spend for 13/14 and saw that the budget forecast export marketing expenditure of around $90,000 with a marked increase in 14/15 to $150,000 in marketing expenditure.
Based on those figures, we could expect Export Grants of around $40,000 in 13/14 and $70,000 in 14/15.
However, the application form in 14/15 would have the following question-
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To receive the $70,000 Export Grant, we would have to look at the Earnings Performance Test calculation.
This calculation determines that the applicant will receive the lesser of:
- the calculation of the grant based on expenditure and
- the calculation of a percentage of the export turnover received during the year. (Yr 3 – 40%, yr 4 – 20%, yr 5 – 10%, yr 6 – 7.5% and yr 7 – 5%)
In our example above, for my client to receive the $70,000 export grant based on expenditure they would have to have received $175,000 in overseas revenue during 14/15 (Yr 4 – $350K, yr 5 – $700k, yr 6 – $934k and yr 7 – $1.4m).
Remember that you do not have to apply every year but that if you are going to have large export marketing expenditure after your first two applications, you should try and line it up with expected export revenue receipts.
So where does it leave my client?
Given the long lead time to receive export revenue receipts, my suggestion would be to not put in an application this year but to lodge the first application at the end of 13/14 (which will include 12/13 expenditure). This will allow the application with the projected expenditure for 14/15 to be lodged without the need for any export sales (obviously any export receipts will be a bonus!).
There are a number of issues that should be borne in mind with the above scenario:
- The EMDG program could cease in the interim
- The rules could change
- The cash flow requirements could dictate that the company get the funds now
Every situation is different, but if you need any further advice on how you can best take advantage of the Export Grant, please do not hesitate to contact me.