Keeping Pace with Evolving Financial System Needs of Life Science Start-Ups
Starting a company is no easy task – overdue bills to pay, constant forecast revisions, exhaustive financing efforts, detailed results reporting. It takes time to get systems in place. Some may enjoy that challenge 😀 . However, at this stage, most controllers will find themselves in a disjointed system landscape that looks something like this:
- QuickBooks or other entry level ERP solution
- Budgeting and Reporting in Excel
- Paper based requisitions
- ADP for Payroll, No HR system
- Concur for T&E processing
- Possibly, some external Procurement solution
Even though you have outsourced things like T&E, Procurement or Payroll to get some efficiency, you find your team expending huge amounts of manual effort just to cobble together the actual results or do basic forecasting or management reporting.
You are hanging on until you can get to a better place, which usually happens when your products start to show significant promise. You are moving from the “Start-Up” stage to the “Clinically Significant” stage. Enter the venture capitalists 😀.
Clinically Significant Stage:
Once your product portfolio starts to show some promise, your company is likely to attract some external investment attention. Your company typically needs the cash to complete product development and clinical trials. While that is the main objective of the VC financing, it can often include funding for additional back office support and scalable systems to support your growth. If you are the CFO, you are deeply involved in the Financing arrangement. So, make sure you advocate for the resources that you will need to support your ever-larger organization!
In this stage, you will be doing a lot more budgeting, forecasting and reporting to your new stakeholders. They will be very interested in your cash burn rates, operational efficiency and market cap projections. A Planning & Budgeting solution, like Oracle Cloud EPBCS can be really helpful in cranking out the constant revisions. At Apps Associates, we actually have a specific Clinical Trials forecasting solution built on Oracle EPBCS, to forecast, track and control the R&D costs, which will likely be the largest part of your organization’s spend.
As you transition into a better place for planning & budgeting, you will be well advised to consider your current chart of accounts structure. Most start up ERP solutions only accommodate a small number of chart segments. As you move to a more complex future state, you will likely want additional chart segments to address the need for reporting by legal entity, cost center, product line, geography and intercompany accounting. You can build these segments into your Planning and Budgeting solution as a starting point, but if you don’t get actual expenditures broken out to this level from your ERP system, you won’t be able to do the Budget vs. Actual comparisons.
What you might want to consider as well in this phase is replacing your current start up ERP system with a future growth platform like Oracle ERP Cloud. Budgeting and reporting won’t be the only reasons to consider a more robust ERP. For example, you may already have foreign operations that need VAT tax, intercompany accounting or statutory reporting capabilities. Better Procurement solutions are also likely needed for lab supply punch-out, self-service requisitioning, and purchasing contracts (for CRO’s and other expensive R&D suppliers). Lastly, at this stage, your R&D Product Development team may be struggling with Inventory control and lot traceability for Clinical Supply raw materials, intermediates and finished batches. An Inventory Management module could really improve the efficiency, accuracy and compliance while setting the stage for a subsequent Supply Chain planning or manufacturing capability.
Taken together, all these needs can build the business case for implementing a robust ERP solution at this time. While you may not always be able to measure the benefit in actual dollars right away, you can immediately measure the business impact. A robust ERP system enables the company to do things that they could not previously do, such as better internal controls, proper segregation of duties, compliant approval processes, quicker financial close and a central shared reporting platform.
Early Commercial Stage:
If you have not transitioned to a more robust ERP platform earlier in your progression, you will almost certainly be considering it as you prepare to move into Phase 3 clinical trials and the “Early Commercial Stage“. Once your company looks headed for regulatory approval, you will need a host of other functional capabilities:
- Order Management and Accounts Receivable (unless you are outsourcing to a 3PL firm)
- Workforce solutions for core HR, recruiting, onboarding, talent management
- Supply chain planning solutions to ensure adequate supply of commercial drug product
- Quality solution to track and mitigate product defects, non-conformances, GMP inspection findings
While not all these modules are necessarily finance related, the GL Accounting system is typically the recipient of all of their financial activities. Having an integrated ERP solution is what you require.
Commercial Stage / Global Roll Out:
Once your first product gains approval, your system needs only grow. You are onboarding lots of employees, rolling out new departments like Sales, Marketing, and Supply Chain. You will be filing registrations to open operations and new legal entities in Europe or even going through an IPO.
As your company grows, so too does your global financial systems footprint. Typical multi-national Life Science companies will require solutions for Fx translation and reporting, statutory reporting, multi-GAAP, foreign sales taxes (VAT, GST, etc.), legal entity reporting, consolidations, intercompany accounting, bank integrations and shared service centers.
Apps Associates’ solutions, experience and accelerators for rolling out a robust, global financial platform like Oracle ERP Cloud can empower you to keep pace with your evolving needs and transition to a financial platform for the future.