The life sciences sector has been challenged over the last few years, and the potential for an economic recession isn’t helping matters. Not that healthcare providers, health plans, and the entire government system aren’t always looking for ways to reduce costs while improving outcomes in the process, but the renewed push has turned the demand and delivery landscape on its head. Naturally, this has put greater pressure on the finance function of all life science businesses. They will play a critical role in assessing potential risks and ensuring the financial resources are available to continue with current and future R&D efforts.
For many businesses in this sector, improving financial management practices will be essential to weathering an industry that’s obviously in the midst of a transformation. This is even more true for smaller businesses in the life sciences. The following are just a few tips to help get almost any business started with its improvement efforts:
1. Manage Expenses
Managing expenses will be key to maintaining a healthy cash flow and improving the financial management of a life sciences business. An effective cash flow management solution can certainly help in the process of automating business records and tracking expenses by category.
Capturing all the information on a single platform allows a business to better budget, track multiple accounts, monitor how much money it has, and compare expenses from one year to the next. It also makes it much easier for a finance team to regularly review the expenses and identify unplanned cost increases. Then, it’s just a matter of benchmarking against other companies in the industry to determine whether spending is abnormally high in any given category. Should a discrepancy be found, it can be more quickly addressed. Take appropriate actions and cut any unnecessary costs.
2. Forecast Financial Performance
Financial projections have long been an essential planning tool for businesses. Those in the life sciences are no different, especially when cash flow varies yearly. Forecasting financial performance follows a fairly straightforward structure, generally starting with evaluating past financial data (i.e., revenue, losses, liabilities, fixed costs, investments, and so on). Then, attention can turn to determine the timeframe and method for the forecast. How far into the future will the business look at its financial performance? A year is standard. And will the best means of forecasting be quantitative or qualitative? With past data available, qualitative analysis is often the model of choice, as the information will be there to identify trends, patterns, and so on.
From there, the business can begin monitoring its financial performance, continue to analyze the financial data and update the financial forecast should circumstances change. Often, a cash flow management solution can greatly assist in this area, as the software automatically integrates and validates financial data. It becomes much easier to adjust forecasts if, for example, R&D isn’t going as smoothly as projected or the sale of rights to royalties has recently gone through. In either situation, the forecast should reflect this fact.
3. Optimize Revenue Streams
Optimizing, if not finding new revenue streams, is often an effective means for making up any lost income a life science business has experienced over the past few years. Because no two businesses will be alike, optimization methods will vary. For some, the most effective means will be upselling and re-engaging existing customers. Others may find it beneficial to secure future contracts, which may entail offering discounts or other benefits in exchange for the agreement. There’s also the option of creating new product offerings or add-on services related to the life sciences industry. Just start brainstorming ways to add value to your current customer base.
Almost any business, regardless of industry, should rely on finance technology to provide the controls, insights, and transparency necessary to improve financial management. Digital solutions ensure that all the information is readily available and reliable to make more informed decisions, uncover unnecessary expenses, and find opportunities to optimize current and future revenue streams.