Tech Challenges in the Phases of Life Sciences Organizations: the IPO Phase

After the startup phase, the life sciences organization can transition towards the life sciences IPO phase. In an ideal world, the company is already using an established ERP like NetSuite. But if not, it’s not the end of the world. At this point, the organization is most likely beginning to start the process toward implementing an established ERP. In addition, you may not have a solid time frame as to when the business is going to go public. As such, you might be considering raising additional funding, but ultimately, the finance team is going to drive a culture shift to act or operate like a public company even before the IPO actually takes place.

One important note for companies going through an IPO: it’s important to have a grade period to give the organization the ability to ramp up its systems to support the new requirements to come with being public. So, if you don’t have your ERP system yet, you’re still okay, because now you have that grace period.

Life Sciences IPO Phase Preparations

The biggest shifts we’re seeing at this stage are the organization size and organization structure. What is the makeup of the team now that we’re moving out of the startup phase into the IPO phase? The organization is growing, but the team members are still wearing multiple hats. Annual expenditures are growing upwards. Transaction volume is significantly increasing. The organization is no longer only purchasing products and lab supplies, but also purchasing outsourced services and service contract agreements.

One thing to start to ask yourself at this point is does your management structure support your approval matrix? We often see an excel-based approval matrix that doesn’t quite align to what either the approval processes were built in start-up phase or a logical representation of how the approval process should actually work. At this point the finance team will start to drive segregation of duties and deployment of those segregation of duties.

We’re also going to see a shift in roles. NetSuite and products like NetSuite support many different types of users. So we may now start to introduce concepts of limited users who may not be involved in the finance or back-end activities, but they may be much more involved in approval processes, purchasing, reviewing documents, and reviewing reporting. So at this point, permission-levels become paramount.

IPO Audit Pressures

As you begin to implement the ERP system or as you come to the completion of your implementation of a new system, right off the bat, the audit pressure  you’re going to have is the need to make sure you accurately prove that you migrated to your new ERP system correctly. So with this, timing doesn’t really matter. You don’t need to go live on the first day of a year or the first day of a month. You really want to focus on making sure there’s a clean cut from your existing system. If you’re on QuickBooks, you stop transacting, you’re removing users, and you’re migrating all of your data into NetSuite or your new ERP system. All new transactions are taking place in the new system. Once completed, you can prove the clean transition from one system to the new one.

Now we can get into system control So in addition to you know, the initial go live from an audit standpoint, we really get into system controls and compliance and change management. This requires you to engage with third-party experts. They help bring controls and understanding of how your systems are going to be tested. You’re establishing system controls. You’re coming up with a process for change management. As your organization grows, your processes are going to continue to evolve, and you need to have a strong change management processes in place to ensure that if someone changes how your purchase approvals are working in the system, you’re still getting the right approval authority.

Also at this point, IT typically begins to get involved with your ERP from a system administration standpoint.

IPO Speed to Value

We’ve found that it is beneficial to separate the implementation of an ERP system from the development and configuration of all the elements related to controls and compliance. Too many organizations bite off more than they can chew, where they try to implement a system and also lock down and mail their compliance and controls at the same time. We’ve seen this create a reverse effect that leads toward delays, project frustration, and user adoption resistance to the new ERP system.

When we discussed earlier that many organizations set a grace period as either the IPO is set or it is looming. This is a really nice period to fully design and document those controls before implementing these controls into your system.

Our ideal scenario is to follow the path of establishing a strong ERP like NetSuite, the user adoption of that new system, layering in the controls after the organization fully defines them, and then system adoption of those controls. This path provides a nice logical walkthrough regarding how organizations handle IPO and finalizing when they are ready for it, all while understanding the users still have their day jobs. They’re still transacting, and they’re still dealing with pressures outside of the IPO world.

IPO Controls vs. Flexibility

It’s easier to implement IPO controls when accounting and finance teams are larger. When a life sciences organization expands to a 20-person finance team, it’s easy to assign one group of people to manage vendors, another group to manage bills, and another group to manage the payments. However, more often than not, the organization’s finance team is still pretty lean. With this, there’s a strong need for an ERP that supports scalability as the organization grows that still segregates duties in regards to transaction complexity. Not everything is going to be as straightforward as buying lab supplies, paying for said supplies, and receiving them.

Changes with transactions are inevitable. One day you will issue a purchase order and realize you need a change order. One day, vendors will change addresses or bank accounts. These changes will suck in numerous roles and users to take care of this process. For example, it could be a scientist that kicks off that change process for a purchase order. It becomes cross-departmental, thereby increasing the need for numerous approvals. Even with this complexity, we prefer to clearly define rules regarding who owns transactions.

One thing you must keep in mind, however, is how easy it is to explain your controls and approvals during an audit. You know you want your controls to be scalable, but you also need them to be simple at the same time. You don’t want to put too many controls in place where you’re slowing down and closing the books at the end of the month. Approval processes don’t have to be super complex, because ultimately that leads to requiring more maintenance and more explanation at auditing.

And with that in mind, we also want an ERP system that provides such reporting out of the box. You have enough to handle when it comes to defining and explaining controls. The last thing you want to add to your to-do list is to build a reporting system from scratch.

Implementing a System Administrator

You do want to start thinking about who will maintain your key business systems as well. At Sikich, we highly recommend that your system administrator work directly for your organization. You do not want to outsource this position.

After the IPO phase for life science organizations comes the clinical trials phase, which will be covered in the next post. Have any questions about the life sciences IPO phase? Please reach out to us at any time!

Other posts in this life sciences life cycle series:

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