InnoVIEW: "The research allowance is like a bonus for innovation"

A practical interview with Elschukom GmbH from Veilsdorf in Thuringia

The research allowance is a tax incentive that allows companies to receive a portion of their research and development (R&D) expenditures back from the government. It provides companies with relatively easy access to innovation funding, regardless of industry or size. Ute Poerschke, Managing Director of Elschukom GmbH, demonstrates how pragmatically and effectively the research allowance can be used by small and medium-sized enterprises (SMEs), also in conjunction with Thuringian funding programs such as InnoInvest. Her approach: simply get started, document everything thoroughly, and combine the appropriate instruments. This creates a sustainable innovation cycle within the company. 

1. Ms. Poerschke, what prompted you to look into the research allowance?

The trigger was an event about the introduction of the research allowance around the turn of the year 2020/2021. I immediately recognized that this could be relevant for us, and we reacted very quickly. Our grant award notices at that time still had very low numbers, which shows how early we were involved. In total, we submitted four projects directly: two mechanical engineering projects that we carried out internally, and two software development contracts.

2. In which industry does Elschukom operate and what exactly do you do?

We operate in the manufacturing sector, specializing in electrical engineering and metal processing. Our focus is on the production of ultra-fine wires, some with diameters as small as 10 micrometers, roughly one-tenth the thickness of a human hair. Standard machines are scarce in this field, necessitating our own in-house development of many solutions. We also develop customized solutions, build our own machines, and program accompanying software. This allows us to operate in highly innovative niche markets.

3. What specific role does R&D play in your company?

We currently have around 86 employees, of whom about 4 to 5 work directly in R&D. In addition, many others contribute on a project basis, bringing our total to approximately 20 people. This represents roughly a quarter of our workforce, which is quite a lot for a medium-sized company. The reason for this is that we develop not only products, but also processes, machinery, and IT systems. Therefore, R&D is not a separate department for us, but rather an integral part of our entire operations.

4. Can you give us examples of projects that you have funded using the research grant?

We received funding for mechanical engineering and software projects. One exciting project was the conversion of an electroplating plant, for which we developed a mercury-free solution. This was technically challenging, but also crucial for environmental and safety reasons. Another project involved the development of winding technologies for extremely fine wires. We are particularly proud of our in-house developed software solutions, which have significantly improved the efficiency of our production. Thanks to these solutions, inventories can now be completed in seconds at the touch of a button.

5. How do you view the research allowance in comparison to traditional funding programs?

Funding programs that offset personnel costs or facilitate investment decisions, such as InnoInvest and FTI-Thüringen for technical personnel, are very helpful for us. InnoInvest and the research allowance, for example, are two instruments that complement each other perfectly. With InnoInvest, I can make specific acquisitions, such as buying machinery or outsourcing services, with a clearly defined outcome. Here, you have to wait for approval before you can start. With the research allowance, I can start immediately, monitor the cost centers, and submit the application later. 

6. What other advantages does the research allowance offer your company?

With the research grant, a project can be submitted even without a successful outcome. So I can say: I'll try something out and see what happens. That fits much better with the reality in medium-sized businesses, where work is often iterative. It's precisely this freedom that makes the instrument so valuable. In our case, development projects sometimes take longer or are postponed because our machine builders are simultaneously involved in maintenance and production. If this changes the timeline, it's not a problem for the research grant. It supports the actual expenditure on personnel, materials, and external services, regardless of when exactly the work takes place. 

7. Do you also use the research allowance strategically for your innovation planning?

We're too small a company to engage in traditional, formally structured innovation planning. That would only slow us down. Instead, our innovations emerge organically from day-to-day operations; we identify needs, collaborate, and develop solutions. Of course, we have a general roadmap and an eye on key technology areas, such as new materials like titanium or platinum. But we don't have rigid innovation planning like large corporations.

8. When do you say: It's worth applying for this, and when is it not?

If I see that only 1,500 or 2,000 euros are being raised, I'll decline. The effort would be too great. The effort wouldn't be proportionate to the benefit. But as soon as a project grows larger and has real depth of development, I can always get involved later. We consciously monitor our cost centers and then make pragmatic decisions. It's not a rigid system, but rather a business-like assessment

9. What is your specific experience of the application process?

Surprisingly simple, to be honest. We already have most of the necessary documents, like project plans and specifications, within the company. The forms are manageable and encourage structure rather than bureaucracy. You don't have to write a perfect text, but rather clearly explain what you intend to do. With a little coordination within the team, this is quite achievable.

10. What were the biggest challenges for you?

The challenges arose less during the application process and more later during the tax office's review. The main issue there was explaining precisely who had worked on the projects. In a medium-sized company, employees often juggle multiple tasks simultaneously – maintenance, development, and prototype construction. Clearly documenting this wasn't always straightforward. But solutions were found for that as well.

11. What role does documentation play in everyday life?

The most important lesson is that documentation must begin early. We immediately create a separate cost center for every potential innovation project. This automatically generates all relevant data as part of our daily operations. Later, this data can be easily analyzed and used for the application. Without this structure, the process would be significantly more complicated.

12. What three tips would you give to other companies?

First: My most important tip: Immediately create a dedicated cost center as soon as a potential innovation project starts and then consistently record all the time spent by those involved in it. Second, don't see questions from the auditors as an obstacle, but actively clarify them and, if in doubt, simply call. Third: Don't wait too long at the end, but submit the invoice promptly, otherwise the payment will be unnecessarily delayed. 

13. What specific benefits does the research allowance offer your company – and what is your conclusion?

The research allowance helps us make decisions and initiate projects without immediately bearing the full risk. At the same time, the payment acts like a bonus after the fact. You get money back for something you've already done. We reinvest this money directly into new projects. The research allowance is a real driver of innovation in small and medium-sized enterprises (SMEs). 

Ms. Poerschke, thank you very much for the interesting interview!