The prognosis for the possibility of a recession—and what kind of impact it might have on life sciences companies—offers both reasons to be cautious, as well as reasons for hope.
The glass-half-full side of the equation is that life sciences companies may be better insulated from economic downturns than other industries, thanks to burgeoning demand. As a 2022 report from Cushman & Wakefield notes, the life sciences industry is poised for further growth in the years ahead, following on the heels of extraordinary investment, expansion, and innovation.
But no industry is immune to the turbulence of a difficult economy. Some of the potential challenges include:
- Supply chain disruption
- Higher interest rates
- Labor shortages
- Capital markets in a less-than-bullish mood
- A downturn in available funding, including the R&D stage
To maintain momentum, life sciences businesses need to plan carefully, taking steps to minimize disruption. More importantly, staying on top of new developments in technology can deliver transformative advantages and build insulation against losses.
Here are 5 ways to make sure your organization is prepared for the eventualities ahead.
1. Stress Test Your Business
One indispensable step is to conduct a financial stress test, to gauge how vulnerable your business may be to an economic downturn. By taking a close look at your financials and running through possible scenarios, you can create contingency plans that will help see your business through periods of adversity.
The good news is stress-testing doesn’t have to be stressful. The process can be as easy as setting up a three-column spreadsheet, or as sophisticated as running computer simulations. When done right, the process can yield valuable insights that will help identify the actions needed to make sure you have both the reserves and the cashflow required to thrive during times of tighter budgets.
2. Recognize the Value of Your Team and Keep Them on Board
The pandemic put life sciences businesses under enormous pressure to deliver the kind of innovations that save lives, even as the pandemic took a toll on its ranks of essential workers. The industry successfully met the moment, but as the demand for medical innovation continues to grow, the competition for talented and experienced workers will only get more intense.
In fact, demand for life sciences products is expected to grow faster than the global GDP in the next few years. To keep up with that onslaught, MassBioEd’s 2021 Life Sciences Employment Outlook has predicted that the life sciences industry will need to hire thousands of new workers by 2024. And that imperative comes with both real challenges and significant financial ramifications.
According to Randstad Sourceright:
- It takes roughly 105 days for life sciences companies to fill non-executive roles, and that lag time often results in losses of $500 or more per day.
- A third (33%) of C-suite and human capital leaders in the life sciences and pharmaceuticals sector say talent scarcity is a major pain point for the sector.
- 45% of those same talent leaders say the main reason they’re looking to hire is to prevent talent scarcity from slowing their business.
One of the best strategies for making sure you retain your talent is by offering amenities that support work-life balance and help team members cope with the pressures of doing their jobs.
With more employees working from home, or utilizing hybrid schedules, some companies are creating environments that allow for better balance. Many have created office layouts that emphasize amenities that serve as perks for those who show up in person, as well as collaborative spaces that make working in the office more appealing.
The dividends of that approach can include not only more engaged and enthusiastic team members, but more collaboration, fresh ideas, and more closely knit teams. And positioning these amenities as a cure for feelings of isolation may strike a chord with workers who’ve spent the last couple of years interacting with colleagues from a distance.
3. All Things in Balance
Cash flow is crucial to making sure you stay on the right side of the ledger. So while it’s important to have substantial cash reserves, it’s also vital to focus on accounts receivable. Avoid stagnation by prioritizing the development of new business and making inroads with new customers. It’s valuable to diversify your customer base so that if one sector gets hit hard, another might keep you afloat.
Making sure the payments keep coming from existing customers should be a primary objective as well. This is an area where machine learning and predictive analytics technology can be of service. Simply by analyzing customer payment patterns to identify which customers are likeliest to have difficulty making payments on time allows you to be proactive. One useful approach might be to plan some extra outreach to customers who may need to be kept aware of upcoming deadlines further in advance.
4. Develop a Spend Management Strategy
Although there’s an understandable instinct to start cutting costs when the economy slows down, it’s more beneficial to focus on smarter spending than simply spending less. Excessive cutbacks can actually be detrimental to your success if they wind up sabotaging your ability to scale up and hit the ground running when new opportunities come along.
A better approach is to develop a well-considered spend management strategy, which involves using data and planning to optimize your organization’s spending in a way that reduces financial risk while staying in alignment with your long-term goals and priorities.
One of the most important keys to making smarter spending decisions is the ability to make accurate forecasts of both cash flow and spending. The good news is that modern business analytics software has tools that can help you in that area.
5. Invest in the Right Technology
It may seem counterintuitive to invest in technology when it seems like the economy may be slowing down. But the right technology solution can bring you the precise set of tools you need to stay agile and solve the problems that are lurking just around the corner.
It’s not just that the right system can help you save money by automating processes. It’s about getting value from data you already have. Making better use of that data by getting it into a modern, cloud-based ERP system will allow you to recognize patterns, predict problems before they arise, and identify solutions more quickly. It can also give you greater visibility into costs, materials, suppliers, and even customer payments.
How NetSuite and Coupa Give You the Edge
One solution that’s worth close consideration is the powerful duo of NetSuite and Coupa.
NetSuite is a robust and fully customizable ERP that can help businesses streamline workflows, automate manual tasks, simplify auditing, and improve finance functions. NetSuite can help life sciences companies compensate for talent shortages through features like:
- Process Automation: NetSuite can automate repetitive time-consuming administrative tasks, freeing team members time to devote their focus to more important projects while also reducing the risk of human error.
- Auditing and Compliance: Legacy accounting systems like QuickBooks and Excel hold organizations back by keeping data siloed in disconnected and sometimes disorderly systems that make errors hard to catch and correct. That’s especially problematic because life sciences companies are often subjected to third-party audits. NetSuite helps resolve these challenges by automating common accounting workflows in a way that’s fully auditable. This makes it possible to identify inconsistencies, maintain higher levels of accuracy, and provide reliable up-to-date reporting.
- Realtime Insights and Reporting: NetSuite makes it easy to track what’s happening across your business. Instead of waiting for the next report to arrive, executives can access real-time reporting in a single dashboard, offering visibility into every business process.
Meanwhile, Coupa is the premier cloud platform that allows you to manage all of your organization’s transactions from procurement through payment, including invoicing and expenses. Coupa integrates gracefully with NetSuite to handle purchase orders, invoices, payments, supplier integration, purchasing system onboarding, tracking bank forms and W-9s, and much more.
Together, NetSuite and Coupa make a great team. Here are just a few examples of the benefits they deliver:
- Increased visibility and control over spend: Integrating NetSuite and Coupa allow life sciences companies to see every dollar spent across the organization, from ordering and approvals through vendor invoice processing. This visibility enables better decision-making in a shorter timeframe, which results in better spend management.
- Automation of Accounts Payable from end to end: Automating AP processes frees up time and talent by eliminating mountains of paper, speeding up approvals, and improving operational efficiency in spend-related processes across the board.
- Better equity event management: The pressures of adhering to SEC and SOX compliance regulations can be daunting in the lead-up to an equity event. But getting the right tools and processes in place can make all the difference. Some of Coupa’s helpful offerings include pre-built SEC reports, system audits, data access controls, segregation of duties for fraud detection and prevention, and more.
Interested in finding out more about how Sikich can help you recession-proof your life sciences business? Contact us and we’ll help you get the ball rolling.