The Biotech industry faces stringent and evolving regulatory requirements around accounting processes, complex financial transactions to fund R&D and maintain intellectual property, and challenging rules around revenue recognition. Managing the books for a biotech firm can be time-consuming and complicated. Fortunately, strategies exist to streamline and simplify your processes. In this blog, we outline some of the most impactful approaches to simplify four critical financial and tax areas.
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Accounting and Tax
Biotech companies often face complex tax compliance requirements, including federal, state, and international tax regulations. Automating data gathering, ensuring timely filings, and staying up to date with changing tax laws and incentives will all make staying compliant easier. A few tips for streamlining your accounting and tax needs include:
- Developing consistent revenue recognition processes: Accurate revenue recognition is crucial for financial reporting and compliance with accounting standards such as ASC 606 (Revenue from Contracts with Customers). This can be complicated for Biotech firms because operations often involve long development cycles, licensing agreements, and milestone payments. In addition, the revenue recognition rules differ for products or services in different development stages. Developing consistent and compliant revenue recognition policies and processes can help you navigate this issue.
- Paying attention to cost accounting: Proper tracking and allocation of research and development expenses, clinical trials, and manufacturing expenses are vital. Biotech firms need accurate information to determine product profitability and make informed business decisions. Streamline your cost accounting by standardizing costing methods across different projects and departments with consistent guidelines for allocating costs, defining cost pools, and determining cost drivers.
- Identifying and tracking Research and Development (R&D) tax credits: R&D tax credits can provide significant tax benefits and incentives, and identifying and documenting qualifying R&D expenses is critical. Ensuring compliance with tax regulations and maximizing available R&D tax credits can significantly impact the firm’s tax liabilities and overall financial performance. You can maximize their value and simplify management by identifying eligible R&D expenditures, documenting activities, and establishing systems to capture and track qualifying expenses efficiently.
- Developing consistent revenue recognition processes: Accurate revenue recognition is crucial for financial reporting and compliance with accounting standards such as ASC 606 (Revenue from Contracts with Customers). This can be complicated for Biotech firms because operations often involve long development cycles, licensing agreements, and milestone payments. In addition, the revenue recognition rules differ for products or services in different development stages. Developing consistent and compliant revenue recognition policies and processes can help you navigate this issue.
Financial Planning and Analysis (FP&A)
Biotech firms use accurate budgets and forecasts to plan and allocate resources effectively. With multiple projects and departments involved, we have some recommendations to make the process easier:
- Standardizing budgeting and forecasting: Establishing standardized templates and formats can provide a consistent starting point for developing financial projections for revenue, expenses, and cash flow, considering product development timelines, clinical trial costs, regulatory milestones, and potential revenue streams. Standardization can also make it easier to consolidate and analyze data across departments.
- Using templates for Financial Modeling and Scenario Analysis: Financial modeling and scenario analysis are critical in assessing the financial impact of various business scenarios and strategic decisions. You can streamline the development of the models and enable scenario analysis by creating and using financial modeling, including pre-built formulas, calculations, and data input sections for financial statements. This can save you time and effort in building models from scratch and ensure consistency across different scenarios.
- Tracking and reporting Key Performance Indicators (KPIs):
By regularly tracking and reporting KPIs, biotech firms can assess their progress, identify trends, and make data-driven decisions to drive performance improvement, optimize resource allocation, and demonstrate accountability to stakeholders.
- Standardizing budgeting and forecasting: Establishing standardized templates and formats can provide a consistent starting point for developing financial projections for revenue, expenses, and cash flow, considering product development timelines, clinical trial costs, regulatory milestones, and potential revenue streams. Standardization can also make it easier to consolidate and analyze data across departments.
Risk Advisory
From an accounting perspective, the risks faced by biotech companies can include:
- Financial reporting risks (e.g., misstatement of financial statements)
- Operational risks (e.g., inadequate internal controls)
- Compliance risks (e.g., non-compliance with accounting standards and tax regulations)
- External risks (e.g., changes in regulations or market conditions
Managing these risks can be simplified in a few ways:
- Identifying, evaluating, and mitigating risks: As with many accounting and finance issues, the key to simplifying your risk management is establishing strategies and plans to identify, assess, and reduce problems. By developing risk mitigation plans, implementing internal controls, and continuously monitoring and reassessing risks, you put yourself in the best position to ensure ongoing compliance and to minimize potential disruptions to operations.
- Understanding compliance and regulatory requirements: Biotech companies must stay up-to-date with changing regulations and the impact of new laws or guidelines and ensure the organization’s activities align with applicable requirements. This is also an area where biotech firms can benefit from engaging professionals with expertise in regulatory compliance who can provide guidance and support in navigating the reporting requirements and ensuring adherence to regulatory standards.
- Identifying, evaluating, and mitigating risks: As with many accounting and finance issues, the key to simplifying your risk management is establishing strategies and plans to identify, assess, and reduce problems. By developing risk mitigation plans, implementing internal controls, and continuously monitoring and reassessing risks, you put yourself in the best position to ensure ongoing compliance and to minimize potential disruptions to operations.
SEC Filings
SEC filings for biotech companies are complex and, depending on the stage of the company, can include completing Form S-1 Registration Statement for IPOs, regular updates via Form 10-Q and Form 10-K Reports and Proxy Statement (Form DEF 14A) when shareholder meetings or approval are needed. Getting these filings right and submitted on time is critical. Some steps to make the process a little smoother include :
- Maintaining well-organized financial data and disclosures: Establish robust systems and processes for collecting, storing, and managing financial information. This includes maintaining accurate and up-to-date records of financial statements, footnotes, supporting schedules, and other relevant documentation required for SEC filings. Keeping things organized as you go facilitates efficient retrieval and compilation of information during the filing process.
- Developing a standardized filing process: Create a detailed checklist or timeline that outlines the key steps, deadlines, and required documents for each filing type. By following a standardized process, you can ensure consistency and avoid overlooking essential filing requirements.
Managing the books for a biotech firm will always be challenging, but these tips can help lift some of the burden.
Streamline operations, stay compliant, and build for the future with Scrubbed.
At Scrubbed, we have specialized knowledge and experience helping biotech companies with the accounting and financial services they need to run efficiently and meet the compliance requirements specific to your industry. Whether you have a CFO who needs support or prefers to outsource your entire accounting and finance department, we have the team to deliver the reporting and advice you require to make informed business decisions.
