Startup Accounting for Biotech Companies: What to Set Up in the First 90 Days
The first 90 days of any startup are the most critical. The decisions you make at this early stage can streamline engagement with investors and regulators, allowing you to focus on your mission without diverting unnecessary time and resources to accounting.
From setting up your financial infrastructure and compliance to tailoring a chart of accounts and establishing a research and development tax credit and grant strategy, every move is strategic and consequential.
At Growise, we specialize in highly regulated industries, and we know a thing or two about what makes for startup success. Based on our experience, we’ve put together a checklist to help you establish healthy financial foundations that will serve you well into the future.
Biotech Startup First 90-Days Checklist
For most startups, the most pressing concern is establishing a solid financial framework that withstands intense scrutiny from investors and regulators. In most cases, we can expect high R&D burn rates, significant grant funding, and critical IP, all of which must be managed and documented efficiently to ensure sustainability and transparency.
During your first 90 days, prioritize these steps to fuel success:
Choose your accounting software
It matters little what application you prefer. Be sure that the one you choose is flexible enough to be tailored to your precise needs. Choosing well at the outset will make your life easier later on.
QuickBooks and NetSuite are both excellent choices, as they are user-friendly, offer advanced functionality, and support role-based work, which is helpful as projects become more complex.
You’ll need to separate your budget into parent accounts for R&D, lab ops, and G&A to ensure investor funds are appropriately allocated through a tailored chart of accounts.
Key features and considerations include:
Scalability (you don’t want to outgrow your software)
Integrations with apps you use for banking, expense management, payroll, etc.
Ability to establish detailed tags to track R&D tax credits and grants
GAAP compliance is essential for all investment-backed startups
Establish business bank and credit accounts
Prioritize financial institutions with experience in the life sciences sector, as they are positioned to support you through every growth phase. Strategic options include J.P. Morgan, Western Alliance Bank, Silicon Valley Bank, and Mercury.
Ideally, you’ll choose an option that helps you minimize fees, integrates with your accounting software, and offers financial services to help you manage equity, venture debt, and foreign exchange.
Consider banks that offer FDIC insurance extensions up to $5 million or more. As a startup, you will likely carry high cash balances, so protecting your deposits is critical.
Hire an experienced biotech accounting firm
An accounting firm that is experienced with biotech startups helps you reduce risk. Biotech is highly regulated and requires niche expertise to ensure compliance and transparency with investors, the IRS, and granting organizations.
A biotech accounting firm can help you maximize your tax incentives, manage what will likely be considerable R&D burn, and prepare detailed financial statements that will appeal to existing and prospective investors.
Some of the benefits of having a qualified biotech accounting firm on your side include:
Proper R&D expense classification.
GAAP compliance.
Estimate and record clinical trial expenses for multi-year projects.
Manage grant milestones and financial reporting.
Maximize tax incentives and credits.
Accurately value your intellectual property for tax purposes.
Provide investor-ready reports.
Help you prepare for due diligence.
Calculate the runway against forecasted R&D expenses.
Optimize spending strategies without disrupting vital operations.
Prepare for regulatory audits.
Provide up-to-date expertise on industry regulations, data protection, IP, SEC, and disclosure.
Set up a call with a Growise CPA today, and let’s talk about your startup needs.
Customize your chart of accounts by project and phase
A standard business chart of accounts (COA) is not suitable for biotech startups. You’ll need to establish separate accounts to track expenses by project, phase, or program, as these details significantly affect compliance reporting.
Accrual is the preferred accounting method because it allows expenses to be recorded when they occur, rather than when the money leaves your account. Using this method ensures a more accurate runway assessment.
Grant income must be reported and tracked separately from equity investments to provide an accurate snapshot of the startup’s financial position.
Costs associated with IP, such as patent filings, may be capitalized and must be documented properly. Systems must also be established to track equity for founders and employees to ensure accuracy in GAAP reporting.
Speak to us today about how to get started.
Establish consistent monthly closing processes
A consistent monthly closing process helps you track R&D burn and enables accurate cash flow projections, critical when you are approaching funding rounds, audits, and compliance deadlines.
Here are a few best practices for biotech monthly closing:
Choose a consistent schedule. We recommend closing within a week of the month-end.
Use a checklist to standardize the process and ensure accountability from month to month.
Integrate with expense-tracking software to improve accuracy.
Record expenses as they occur. Do not wait until month-end.
Be sure to record accurate clinical trial enrolment data.
Assign R&D costs to the correct project or phase.
When tracking grant income, recognize revenue only when expenses are incurred.
Inventory all samples, raw materials, and fixed assets for depreciation.
Use automated tools when possible to reduce manual work.
Initially, create an 18-month cash flow forecast
An 18-month cash flow forecast is essential for biotech startups, as it will help you more accurately predict your financial needs during the critical early phases of your R&D. You’ll need to ensure you have enough runway to reach critical milestones such as IND filings or pre-clinical data submissions.
An 18-month forecast may help you mitigate funding risks and delays and improve your decision-making during your critical first year. By identifying shortfalls early, you can make proactive adjustments or funding decisions that avoid disruption and keep your projects on track.
What’s Next?
Growise CPAs are here to support you with qualified financial advice and professional services tailored to your industry. Set up a call today, and let us show you how we can help.