Starting a biotech company is a lot of work — and a lot of stress. If you want to be successful, one of your biggest hurdles will be accurately planning your finances. Biotech companies often deal with enormous startup costs and unpredictable profit margins.
If you want to attract sufficient funding and avoid running out of cash, you’ll need to estimate your expenses accurately.
Tips for More Accurate Biotech Startup Cost Estimates
Estimating startup costs is tricky at best. You’ll be dealing with dozens of unknown variables. Your business may not resemble one that already exists, giving you no reliable blueprint to work from. Still, you can follow these tips to more accurately project your expenses:
1. Get to know your lab equipment options.
One of the biggest expenses you’ll face is setting up your lab — complete with the equipment you need to research or manufacture your product. There will be many options available to you, and taking the right approach could save you thousands. For example, leasing your lab equipment instead of buying could immediately reduce the upfront cash burden your startup will face, freeing up money for other needs. You may also be able to find a deal on used equipment or make certain concessions to save money.
2. Talk to suppliers.
Look up the list prices for the equipment and products you’ll need to run your business. While this approach is viable, it may lead to inaccurate expectations about what you’ll eventually pay. In many cases, it’s better to talk to suppliers directly — and to talk to multiple suppliers. You may find some are willing to offer unique discounts to businesses like yours; others might based on the type of supplies you’re ordering. You may also learn about important pieces of equipment you may not have considered in your original estimates.
3. Understand your staffing requirements.
The biotech industry employs more than 1.5 million workers in the United States in research and development alone. However, estimating the staffing needs for a single company can be difficult. If you hire too many people, you’ll put a burden on your profitability model. If you hire too few, you won’t be able to operate efficiently. Work to determine the “sweet spot” for a startup like yours, and err on the side of minimalism; you can always hire more people later.
4. Allocate enough for legal help and insurance.
Some of the biggest and hardest-to-predict costs for biotech startups relate to legal management and insurance. As a biotech company, you’ll need to comply with numerous laws and regulations, so you’re certain to need legal guidance. You’ll also need sufficient product and umbrella liability insurance to protect you in case something goes wrong. Be sure to talk to doctors and insurance agents in depth about your startup’s needs.
5. Be wary of hidden costs.
Hidden, unpredictable costs can compromise even the best planned budget. For example, you’ll need to account for hidden costs like shipping and taxes. These can interfere with your bottom-line margins if you aren’t careful.
6. Account for losses.
Occasionally, you’ll deal with losses in one of many different forms, which can eat into your bottom line. You might face returns from customers, bad batches, or lost productivity from an unexpected shutdown. These factors are what make the biotech industry somewhat volatile, but if you plan for them and have contingency plans in place, you’ll be better protected.
7. Always plan conservatively.
Entrepreneurs are often tempted to project ambitious financial plans to attract investors, but this approach typically backfires. Instead, it’s better to plan conservatively, accounting for unknowns and protecting your financial model, even when it’s under strain.
Relying on Multiple Sources
One of the best things you can do to get more accurate estimates for your biotech startup is to rely on multiple sources of information. If you lean too heavily on one source, you’ll likely over- or underestimate your costs in that area.
For example, if you only research one supplier, you may end up with an inaccurate perception of how much a specific piece of equipment costs. If you only talk to one peer entrepreneur, you may get a biased view of expense management in biotech.
Spend time reviewing many different sources, comparing and contrasting their outlooks. The truth is likely somewhere in the middle. Once you have a conservative financial model in place, you can start moving your startup forward. Just remember to make adjustments to your financial projections as you learn more about your industry so your smart start doesn’t fizzle.