Developing a life sciences product and going to market is not easy. There’s the research and development, of course, but there’s also the business-building side.
This business-building side is where many life sciences founders struggle. With that in mind, we talked with Gavin Maitland, CEO and founder of Fleming CFO. Maitland assists life sciences startups with the financial side of scaling up a business and getting funding.
When do life science firms approach you for financial help typically, and why?
So most life sciences founders are physicians or scientists. So they’re focused on the science. They're driving forward some kind of therapy, some kind of product or drug, and they've got some positive results in the lab. And they think they can see some applications for it.
They then want to bring in some outside investors or even bring in some outside people to help them. And at that point, someone says to them, "Hey, can I see your financials, both where are you right now, and a projection about the future.”
That’s the point they typically give me a call and say to themselves, "Jeepers, I haven't got anything other than my Excel file on the computer." They’ve been thrown in the deep end, and they need some help.
Where do life science firms need the most help for getting their business ready for funding and growth?
Life sciences founders often just think in terms of cash, because that's all they're concerned about—cashflow. Do they have enough runway to get to the next grant or the next inflection point so they can get some data to show they are a viable business or convince their grant authorities to give them some more funding.
So they're totally focused on cash. But often an external investor will want to see GAAP financials, statement of operations, balance sheet, statement of cash flows going back in the past and then also going forward in the future.
So that's where they're weakest, just understanding the need for the overall financials and what is required.
How do founders get up to speed?
I often start founders with Quickbooks, and I tell them it is the go-to solution as a business starts. But I also tell them that at a certain point, they will want to move to something bigger and better that is more suited for the long-term—an enterprise resource planning system (ERP).
I have two criteria for knowing when they should move from Quickbooks to ERP.
One criteria is multicurrency subsidiaries, when they own a company and either buy a company or open up a subsidiary. I had one client that is in the US, and they opened a subsidiary in Australia because wanted to do clinical trials faster in Australia because they were able to do that. The requirements weren't so specific that the FDA had them. Australia also gave them a very substantial R&D tax credit for all the R&D they spent in Australia.
So suddenly, they’ve got a consolidation to do every month from having two entities. Because they’ll have a subsidiary company, 100% subsidiary company in Australia. And doing a consolidation in two currencies, Excel will only take you some distance. QuickBooks doesn't do that. So suddenly, they’re talking about a ERP.
QuickBooks also isn't very good for multi-location. So if they've got two or three sites, like a manufacturing site that's away from their main office, their main lab or two manufacturing sites or international manufacturing sites, they need the extra scale of an ERP for that.
What’s the second criteria for knowing when a life sciences firm needs ERP?
The size of the company. They want a number of people who can access the system, and they need to analyze their numbers more for forecasting and reporting. An ERP gives them a more detailed general ledger they can do more things with. They can analyze information in a more detailed format. They can run specific reports automatically, and satisfy investors.
One example of this is when a founder wants to segment products a bit better, so they want to have more classes and segment cost lines.
Automation also is part of it. There's a flow of purchase invoices coming in. And then you got to somehow have a purchase order system so that you can see what people ordered, and get it approved properly, and then match to a purchase invoice, then match to a payment. You need an ERP's flexibility to handle all those different parts efficiently.
Segregation of duties plays into it, too. As the organization gets bigger and there's more people involved, the sheer volume of transactions, an ERP gives you better segregation of duties so that a transaction has to be approved by somebody else.
When a life sciences business is just getting going, I set them up in QuickBooks. But when they are ready to grow or are seeking outside investors, that’s the time I guide them to an ERP solution.
Thanks for your insight, Gavin.
For more on how ERP can help a life sciences business grow, contact one of our experienced consultants at (801) 642-0123 or by emailing firstname.lastname@example.org.