Accurate accounting is essential for biotech companies—not just for financial reporting and taxes, but also for navigating strict regulatory requirements from authorities like the FDA, managing grant compliance, and meeting other industry-specific standards.
In my experience working with biotech companies, I’ve seen firsthand the benefits of strong accounting practices in several key areas including:
- Risk Mitigation: Reduces exposure to fines and regulatory issues by ensuring compliance. A significant fine could make or break an emerging startup.
- Operational Efficiency: Helps manage budgets, allocate resources, and forecast effectively.
- Investor Confidence: Transparent financial practices enhance investor trust, supporting future fundraising and company growth.
- Tax Credits: Accurate records help secure tax credits, offsetting expenses and providing valuable incentives for investors.
When it comes to compliance, I’ve found the following three areas to be most critical and impactful for biotech startups:
1. FDA Compliance and Accurate Accounting
Biotech companies must meet FDA regulations throughout product development, from preclinical research to post-market surveillance. Too many companies stumble—not because their science is flawed, but because they fail to maintain the proper documentation and key financial metrics required to demonstrate compliance. When it comes to FDA compliance, biotech startups need to pay particular attention to:
- Clinical Trial Reporting: Accurate financial records ensure compliance with FDA reporting requirements, preventing delays or denials of applications (e.g., IND filings).
- Regulatory Submissions: Financial transparency in submissions (e.g., IND, NDA) supports timely approvals. Overhead costs are high in most biotech startups, and delays of just a few months can jeopardize the company’s future.
- Audit Preparedness: Proper financial records are essential for FDA audits, helping startups avoid costly penalties, delays, or product recalls.
Audits play a major role in compliance—and not just from the FDA. Investors, grantors, and other third parties may also request audits. Burkland helps companies prepare early, using a thoughtful, stage-appropriate approach so you’re not scrambling when an audit request comes in.
2. Grant Compliance and Accurate Accounting
Government and private grants fuel biotech growth by funding research, development, and clinical trials. However, compliance is mandatory to maintain eligibility for grant funding. The complexities of grant accounting can feel overwhelming, but Burkland’s specialists can help biotech startups navigate the process, including:
A. Cost Tracking
Accurate cost accounting ensures compliance with grant fund allocation, avoiding misreporting of allowable and unallowable costs. Burkland’s grant experts can help set up class tracking and implement accounting that is optimized for compliance with the terms of your agreement.
B. Matching Funds
Many grants have stipulations that require you to match funds before you can unlock the next round of funding. Proper tracking is needed to demonstrate required matching contributions.
C. Grant Reporting and Auditing
Accurate financial reports must be submitted regularly to grantors, and many grants require periodic audits. Failure to provide proper documentation—or problematic audit findings—can result in penalties or loss of funding.
Almost all government grants have some type of compliance audit in their life cycle. Failing to demonstrate compliance could jeopardize your current grant and hurt your chances of securing future funding.
D. Indirect Costs
Correctly allocating overhead costs ensures proper reimbursements and audit compliance. At startups, employees and contractors often wear multiple hats, meaning only certain portions of their pay may be covered by grant funding. Burkland can help allocate expenses correctly to meet compliance requirements.
3. Other Regulatory Compliance
Biotech companies must adhere to various industry regulations beyond the FDA and grants, which may include but aren’t limited to:
- Good Manufacturing Practices (GMP): Accurate cost tracking is crucial for GMP compliance in drug and device production.
- Environmental and Safety Compliance: Financial transparency in expenses related to EPA and OSHA regulations is necessary to ensure compliance.
- International Compliance: Startups operating globally must comply with applicable export control regulations to remain in good standing.
Conclusion
In the biotech industry, regulatory compliance is both complex and stringent. Accurate accounting is a financial necessity and a regulatory imperative. Inaccurate accounting can jeopardize a company’s ability to secure grants, maintain FDA compliance, and ensure smooth audits or inspections. By maintaining precise, transparent, and consistent accounting practices, you can protect your biotech startup from financial and legal risks, improve your ability to attract investors, and streamline product development and regulatory approval processes.
Burkland’s extensive experience in this area can help you avoid costly mistakes, stay on track with operational milestones, foster operational efficiency, and ultimately promote continued business growth. Our controllers, CFOs, and FP&A specialists work with many biotech startups and can proactively plan for compliance areas that may arise as your company scales. Contact us to learn more.