Science|Business senior editor Nuala Moran.
Specialist biotech investor Andy Allars, CEO of Sulis Investment Management, told the meeting that although investors are well aware of the penalties of wrongful trading, the directors of companies often are not. “I know of one biotech company that had 18 months cash in the bank, but this was all committed. If the company had not taken action to get extra funding the directors would have been personally liable.”
With new funding hard to come by, many companies are now in the position of trying to extend their cash runways.
An integrated approach to financial management should provide an early alert to “point zero”, but said Allars, “In my experience few directors have accounting systems fine-tuned enough to highlight the problem, which gives these companies little space to manoeuvre.”
A liquidator might contemplate a personal action against the directors of the company on the basis that they engaged in wrongful trading unless it can be proved that directors took every step to minimise the potential loss to the creditors.
This is only possible if the financial management system produces reports that are understandable by non-accountants and provides meaningful data, commented Gordon Cameron, former CEO of the vaccines company Acambis plc and now Chief Financial Officer of Quotient Bioscience, a provider of analytical services for drug development.
“Quotient is a real business, in the sense that we have revenues and we are profitable. For many companies in the biotech sector that is an unusual concept,” said Cameron. “I have noticed a much greater focus on the financial information by management in revenue-generating businesses. Ironically, in the cash-strapped biotech world, this is often neglected by management who are more focused on pipeline progress, which for them is what is driving the value of the business.”
Financial mentor David Blair, CEO of DBA Group, has developed an interactive approach to financial management, that allows directors to assess ‘what if scenarios’ quickly. He told the meeting, “All aspects of the business process have a common feature – they cost money. A lack of joined-up thinking means that money is not spent to good effect, and there is duplication of effort.”
DBA Group focuses on the particular needs of early stage technology and biotechnology companies, and Blair offers the following advice to start-ups:
Think of finance as a source of data, not a bean-counting overhead, like an external study or analysis tool.
From the earliest stage, decide what the model is. Involve the finance team in building a detailed financial representation, and get the accounting team set up so they understand it and capture data in the same format.
Involve the operational team so they can analyse the data and present it as a key part of the monthly board report, not a sideline.
Make sure the past, which you can’t change, is integrated so as to inform the future, which you can.
Cash planning makes the money go further, proper discipline supports due diligence.
Remember the end game – your exit strategy. The accounting team can add value by preparing for due diligence, providing a professional presentation of company, and giving a ready assessment of alternatives.
The Eastern Region Biotech Initiative is the industry body representing biotechs in the Cambridge region.
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