At G-Squared Partners, we regularly encounter life sciences companies that have built impressive scientific platforms, assembled world-class research teams, and developed promising therapeutic candidates, only to find their progress stalled by preventable financial management challenges.
Accounting basics may be the same everywhere, but life sciences companies face challenges most founders don’t anticipate: complex regulations, demanding investors, and deals that hinge on getting the details right. That leaves an important choice: build an in-house accounting team or work with life science accounting specialists who already understand the industry.
For many companies, partnering with experts is the smarter path. It keeps finances investor-ready, avoids costly missteps, and frees leadership to stay focused on what matters most—advancing the science.
In the early days of a company, life sciences accounting initially appears manageable. Companies track research and development expenses, manage cash flow, and prepare standard financial statements using familiar accounting principles. Many early-stage companies successfully handle basic bookkeeping requirements with minimal staff, reinforcing the perception that specialized expertise isn't necessary.
However, this apparent simplicity masks a series of nuanced challenges that emerge as companies mature and face increased scrutiny from investors, auditors, and potential acquirers. The consequences of mishandling these challenges extend far beyond compliance issues to affect fundraising success, transaction valuations, and strategic positioning.
Research and development expense management represents the most significant challenge for most life sciences companies. R&D typically accounts for 60-80% of operating expenses, making it the dominant component of the financial story that companies present to investors and partners. Yet properly accounting for these expenses requires sophisticated understanding of clinical trial accruals, collaborative research arrangements, and grant funding requirements.
Clinical trial costs present particular challenges because they span multiple accounting periods, involve numerous vendors and clinical sites, and include variable components like patient enrollment bonuses and milestone payments to investigators. Companies that fail to implement accurate accrual processes often experience unexpected swings in reported results that damage credibility with investors and create complications during due diligence processes.
Revenue recognition under ASC 606 has fundamentally changed how life sciences companies must account for partnership arrangements, licensing deals, and milestone payments. The standard requires companies to identify distinct performance obligations within complex contracts and allocate transaction prices accordingly. A typical biotech licensing arrangement involving upfront payments, development milestones, regulatory milestones, and future royalties cannot be accounted for simply by recognizing the upfront payment as immediate revenue. Instead, companies must carefully analyze each component to determine the appropriate recognition timing and methodology.
In practice, this means your reported revenue might look very different from the cash you receive—a difference investors will scrutinize closely.
These accounting complexities are not merely technical exercises. They directly affect the financial metrics that investors use to evaluate companies, the due diligence processes that buyers conduct during acquisition discussions, and the credibility that management teams establish with key stakeholders. Companies with inconsistent or inappropriate accounting treatments face significant disadvantages in competitive fundraising and transaction environments.
Building an internal accounting team can feel like the obvious move. It keeps things in-house, gives founders a sense of control, and looks like a cost saver compared to hiring outside help. But in practice, most life sciences companies run into the same roadblocks.
The kind of expertise you need—clinical trial accruals, complex revenue recognition, grant compliance—isn’t easy to find. Early-stage teams often end up hiring generalists, then spending time and money training them, only to realize they’re still missing critical knowledge.
The timing doesn’t help either. Accounting demands spike during trials, fundraising, or transactions, then drop back down once things stabilize. Paying full-time salaries for talent you only need part of the time rarely makes sense.
One of the biggest risks? Internal teams often don’t know what they don’t know. Missed R&D credits, revenue recognition policies that don’t hold up under investor scrutiny, and weak due diligence prep can quietly pile up, before presenting themselves as problems at the worst possible moment.
Partnering with specialized life sciences accounting providers offers several strategic advantages that extend beyond basic cost considerations. These providers bring accumulated expertise developed across multiple companies and transactions, providing insights and best practices that internal teams struggle to develop independently.
The value that these partners bring unlocks three core advantages for life science companies:
The decision to outsource life sciences accounting requires careful evaluation of potential providers to ensure they possess the specialized knowledge and strategic capabilities that justify the partnership. Several factors distinguish truly qualified providers from general accounting firms that claim life sciences expertise.
Key evaluation criteria include:
The most successful life sciences companies treat financial management as a strategic enabler rather than a compliance necessity. They invest in building robust accounting foundations, comprehensive management reporting, and detailed documentation that supports critical business decisions and external stakeholder communications.
This infrastructure becomes particularly valuable during inflection points in company development when the quality and sophistication of financial management directly affects outcomes. Companies preparing for significant fundraising rounds, strategic partnerships, or acquisition discussions benefit enormously from having established credible, transparent financial reporting that facilitates stakeholder confidence and due diligence efficiency.
The timing of these investments matters significantly. Companies that establish strong financial foundations early in their development create sustainable competitive advantages that compound over time. Those that defer financial infrastructure investments until they face external pressure often find themselves addressing these needs during the most critical and time-sensitive periods of their development.
At G-Squared Partners, we understand the financial challenges life sciences companies face—from managing complex R&D costs to preparing for investor due diligence and potential transactions. Our approach combines accounting expertise with strategic guidance so your financial systems support your goals rather than slow you down.
Companies that establish a strong financial foundation early are better prepared for fundraising, partnership discussions, and long-term growth. With the right structure, accounting becomes a competitive advantage that builds investor confidence and frees your team to focus on advancing the science.
If you’re questioning whether your current accounting function can keep up with your growth and investor expectations, it may be time to explore a different approach. Contact G-Squared Partners to strengthen your financial foundation and position your company for lasting success.