In manufacturing, proof of concept (POC) steps are often as diverse as the products being produced. From reviewing CAD files to building prototypes, the POC stage is shaped by client needs, cost considerations, and a host of other factors.
But as wide-ranging as POC processes can be, they do share a common thread: an opportunity to reap valuable R&D tax credits. Here's a look at some common POC steps and how they could bring unexpected value to your business.
Defining the Process
The ideas shared with your customers often require a proof of concept, prototypes, or samples supplied to the engineers. In the most general terms, the POC process is simply your personnel "gathering sufficient evidence of the technical viability of your product or service." By definition, a true POC process is repeatable and tests the core functionality of your product.
Proof of Concept Steps
The time and effort your company spends in the fit-form-function stage (including programming, engineering, and producing the soft tools or 3D print) to provide your customer sample parts often qualifies for R&D tax credits. This is true even though your customer is paying you a fee for providing the service.
So, what are the actual POC steps you should be documenting?
Generally speaking, proof of concept processes will involve the following activities:
- Examining the operational requirements of a product
- Identifying potential safety and environmental hazards
- Preliminary production and manufacturing assessments
For manufacturing, specifically, some of the most common POC steps include:
Prototype creation and testing
These certainly aren't the only POC activities that qualify for R&D tax credits. Based on the customer’s requests, quantity required, and tolerances that must be held, prototype production may require preliminary tooling and processes that you may only use once. So, it's important to have a solid evaluation process in place to identify which specific activities may earn you those valuable R&D tax credits.
Which Activities Qualify?
There are a few simple ways to tell if your proof of concept steps qualify for R&D tax credits.
Qualified activities include processes that can be accurately repeated, along with documentation of modifications made to the original process. Unqualified activities would include any manufacturing of existing products with no design or revision changes.
Another way to determine what qualifies for R&D tax credits is to use the Four-Part Test. To pass the test, time spent by all personnel must involve each of the following criteria:
The Four-Part Test can be extremely helpful, but remember, it's only a rough guide. For a more detailed assessment, you have to look at each step individually.
The Proof is in the Pudding
Proof of concept processes can take many forms and involve a number of personnel groups. But as easy as it can be to get lost in the specific operations of your POC process, it's important to keep the bigger picture in mind. By documenting your proof of concept steps, you can leverage your existing processes to add value to your business and create new growth opportunities.