Accounting for Biomedical & Healthcare Startups
At Pearl Lemon Accountants, we recognize that biomedical and healthcare startups operate differently from traditional businesses. Your financials go beyond profit and loss statements—they determine whether your next round of funding is approved, whether your NIH or SBIR grant remains compliant, and whether your R&D expenses are structured to maximize tax credits.
Our Services
We provide financial accuracy designed specifically for companies navigating FDA regulations, NIH compliance, ASC 606 revenue recognition, clinical trial cost allocation, and biotech tax incentives.
R&D Tax Credit & Expense Structuring
Biomedical startups allocate significant resources to preclinical research, clinical trials, and product development. However, many fail to claim eligible payroll, supply, and contractor expenses under IRS Section 41 (R&D Tax Credit).
- How We Help: We ensure that all eligible R&D expenses are correctly classified, documented, and structured to maximize tax savings while maintaining compliance.
- What This Means for You: If your company has no revenue, the credit can offset up to $500,000 in payroll taxes annually. If revenue-positive, it directly reduces tax liability.
- Example: A biotech startup with $3M in R&D expenses secured $400K in credits, extending its cash runway.
Grant Compliance & Clinical Trial Cost Accounting
Government grants (NIH, SBIR, BARDA) and investor funding require strict cost tracking. Biomedical startups must separate direct and indirect costs, categorize allowable and unallowable expenses, and allocate clinical trial expenses per OMB 2 CFR 200 regulations.
- How We Help: We establish financial structures that comply with federal grant reporting requirements, ensuring accurate tracking and allocation.
- What This Means for You: Prevent funding delays, audit failures, and grant clawbacks by maintaining complete and justified financial records.
- Example: A medtech firm flagged for improper cost allocation retained its $1.2M NIH grant after we corrected its methodology.
ASC 606 Revenue Recognition for Licensing & Milestone Payments
Most biotech companies receive milestone-based payments, licensing fees, or royalties. ASC 606 requires revenue to be recognized based on contract performance rather than when cash is received.
- How We Help: We ensure compliance with ASC 606 rules, aligning financials with investor and regulatory expectations.
- What This Means for You: Reduced audit risk, accurate financial statements, and increased investor trust.
- Example: A biotech firm misclassified a $2M milestone payment as immediate revenue, creating a misleading financial statement—our correction prevented financial misrepresentation.
Burn Rate & Cash Flow Optimization
Startups must carefully manage cash flow to avoid financial shortfalls before the next funding round. Investors look for controlled burn rates, accurate forecasting, and runway projections that align with growth milestones.
- How We Help: We create financial models that balance cash inflows (grants, investments, licensing deals) with outflows (clinical trials, payroll, regulatory costs).
- What This Means for You: Transparent burn rate calculations that demonstrate financial discipline and support investor confidence.
- Example: A biotech firm extended its cash runway by eight months by restructuring vendor payment terms and improving cash flow management.
Fundraising & Investor-Ready Financials
Raising capital for Seed, Series A, or Series B rounds requires financial records that can withstand investor due diligence. Investors scrutinize operating cash flow, R&D spending, revenue projections, and financial controls before committing funds.
- How We Help: We prepare financial statements, due diligence materials, and financial models that investors trust.
- What This Means for You: Increased investor confidence, quicker funding approvals, and reduced financing risks.
- Example: A biotech firm secured $10M in Series A funding after we ensured their books were audit-ready and structured for investor review.
FAQs
All wages, contractor costs, and supplies used in qualified research should be categorized in dedicated accounts. Eligible expenses must align with IRS Section 41 guidelines and be fully documented.
Not following OMB Uniform Guidance (2 CFR 200), which requires clear cost separation between direct, indirect, and unallowable expenses. Misallocation can lead to funding clawbacks and compliance issues.
Yes. If pre-revenue, the credit can offset up to $500K in payroll taxes annually under Section 41(d).
Under ASC 606, revenue must be recognized when contractual obligations are met, not when cash is received. Incorrect reporting can raise investor concerns and regulatory issues.
Get Your Startup’s Financials Ready for Growth
If you need investor-ready, audit-proof, and tax-optimized financials, let’s talk. Biomedical accounting isn’t just about numbers—it’s about structuring finances to support funding, compliance, and growth.
Let’s ensure your financials are set up correctly—before audits, tax deadlines, and funding rounds create challenges.
