Mind the Gap: Finance Systems in Biotech
I recently wrote a blog post on the two ERP system options I see available to early stage biotech companies. This proved to be a popular topic and even resulted in a few follow up calls, including one with two founders interested in finance systems in the biotech space.
They asked me what gaps existed in the current finance solutions and after over 20 years in life sciences working with early stage biotech, med device, and diagnostics companies, I realized I had a lot to say on the topic (which really should surprise no one who has ever worked with me).
I first clarified with the two guys where the gap exists. Most early stage biotech companies start with QuickBooks and they do just fine with it until the company starts to prepare for an IPO at which point they need more controls than QuickBooks has to offer.
This is where the biggest gap exists. As I shared in my blog post back in April, there are only two viable options right now: Oracle’s NetSuite (for financials) or Microsoft D365 Finance and Supply Chain Management.
I don’t see a need to replace QuickBooks for the pre-IPO accounting. There are a lot of biotech accounting folks with experience with the software, it’s relatively inexpensive, and it seems to do the trick. I don’t hear many complaints about it from biotech accountants.
But the jump from QuickBooks to NetSuite or D365 is huge and often doesn’t come with the state of the art functionality that many of us have grown accustomed to in other aspects of our lives. I’ve often heard complaints that the software, while Cloud based, is old-school and I get it.
To get more 21st century tech, we need to look to other point solutions and integrate with a foundational ERP system like NetSuite or D365.
Fortunately there are a lot of independent vendors capitalizing on these gaps by creating solutions for these business functions like procure to pay, AP automation, FP&A/budgeting, expense reporting, period end close, etc.
This means that someone in the organization needs to be paying attention to security, integrations, and regular SaaS updates and how they impact the business and data.
Most of the early stage biotech companies I see outsource most of their IT and have adopted Cloud solutions which is great, but they aren’t doing such a great job with enterprise system oversight. This creates another gap and introduces significant risk to the organization.
Right now the core functionality addressed in a solution like NetSuite is:
— Basic requisitions, approval workflow (basic or more complicated with a workflow engine), conversion to PO
— PO receipts, invoicing against either the PO or the receipt; invoice approval (basic or more complicated with a workflow engine); payments with limited integration into banks such as SVB
— General ledger including journal entries and journal entry approval (basic or more complicated with a workflow engine), project accounting (not great btw), allocations, accruals, consolidations, multi-entity, multi-currency, bank account reconciliation
— Fixed assets including depreciation and integration with the GL
— Financial reporting including budget to actual if the budget is imported into the system, consolidated reporting
The Big Gaps
So where are the big gaps?
— AP automation: NetSuite can’t ingest an invoice from an email and convert to a bill for approval and payment. Bill.com is trying to bridge that gap but falls short when it comes to matching to POs. Once I have the ideal solution, I’ll update this post. Companies like nvoicepay may offer the solution.
— AP payments: NetSuite doesn’t make vendor payments easy. If you use SVB, there are ways to get the file to them and some implementation partners have built custom solutions as workarounds. Why this isn’t easier in NetSuite I do not know. This should be satisfied by an AP automation solution.
— Expense reporting: most ERP systems suck at this and if you are subject to the Sunshine Act rules, Concur is the go to solution. I recently heard about Certify, a solution that is trying to compete with Concur, but have no experience with it. Expensify seems to be a fan favorite and apparently integrates well with NetSuite but doesn’t handle Sunshine Act requirements.
— FP&A/Budgeting: most ERP systems suck at this too. You can import A budget but most of the time you can’t do what-if scenario planning or have multiple versions. Thus, Adaptive (acquired by Workday) and Planful (formerly Host Analytics) tend to be the post-Excel go-tos for biotech companies. Both integrate with NetSuite. Note: Oracle NetSuite tends to push it’s only FP&A tool which has been dubbed Hyperion-lite. I haven’t seen it lately and I had clients who hated Hyperion, especially the integration into Oracle products so it’s safe to say I am most likely going to be biased against it.
— Procurement: this is a pretty big category and includes requisitions, approvals, PO generation, and punch outs to vendors. Coupa and SAP Ariba have been fairly big players in the space over the last decade and if a biotech company has labs, generally they will need some sort of punch-out solution to vendors to make purchasing easier (many years ago I implemented SciQuest for a client and integrated into a third tier ERP solution). Most of my clients of late have outsourced their labs so the punch-out functionality isn’t necessary. As for the requisitions, approvals, and PO generation, I am still on the lookout for the ideal solution for my clients.
Outside of Scope (for now)
There are some pretty significant pain points that are considered out-of-scope for any type of financial system solution but should be considered from a process or system integration perspective.
And, there are moderate pain points for other cross-functional business processes that should at least be mapped out as part of any financial system implementation plan.
— Major pain point: Contract management
— Major pain point: Clinical trial management for payments
— Moderate pain point: Timesheet / time tracking (project costing/allocations)
— Moderate pain point: HRMS/HRIS/HCM (employee data for approval hierarchies, expense reimbursements, etc.)
— Minor pain point: Payroll (typically handled with GL journal entry; turns into moderate pain point with projects/time allocation)
This Should Be Easier!
I agree. This shouldn’t be so hard. I’ve been asked more than a few times to create a finance/SCM solution for biotech companies and I’ve declined. It’s not where I want to spend my time and I get bored too easily.
With that being said, we should be able to put together a map of the solutions and solution options to make it easier for the accounting/finance person to decide on what’s best for its organization for the next 3–5 years. Especially if they’ve thoroughly mapped out their business processes and defined their requirements.
I’m working on that roadmap which is not an easy task as the players and technology keep moving. And Microsoft keeps changing its ERP roadmap and product names.
Need help? Not sure if you do.
Please reach out to me if you have any questions or want to learn more. I can be reached at firstname.lastname@example.org. Or check out my company website at solutions2projects.com.