Financial Analysis and Projections
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Components of Financial Analysis and Projections for a Business Plan
Even if you have a partner or someone you hire handling the financial aspect of your business, you need basic knowledge to understand their reports and recommendations and to evaluate their work.
You will need to gather the following information to generate a financial projection:
- Establish your price.
- Develop an order fulfillment strategy.
- Estimate costs for raw materials, salaries, activities (e.g., travel), rent, and equipment.
- Estimate how long it will take to produce your product or to provide your service.
- Project your sales revenue and other income.
- Analyze cash flow and balance statements.
- Estimate a year’s worth of costs, including any loan repayments and the income you want/need.
A worksheet for a projected financial statement can be downloaded from the SCORE.org website. The results help indicate whether your business is likely to succeed.
How long does it take to bring a product or service to market, and what does it cost?
Successful biotech companies have started rapidly with under $200,000 (ULP, 2020). However, more typical scenarios involve years and much higher costs.
- Diagnostics, medical devices, and molecular tests can take three to seven years and cost millions (Biolyse, 2018).
- A new drug or biologic could cost around $2.5 billion and take 10–15 years (ULP, 2020; Biolyse, 2018).
- A business that provides a service, such as running a lab or a contract research organization, typically can be developed faster and cost less. However, there are time-consuming steps including registrations, licensing, and finding the financing to purchase enough equipment at the outset. For example, CLIA registration is needed to run a clinical laboratory.
What is the success rate for biotech companies?
The startup success rate for health tech, which includes hospital management, health monitoring software, and telemedicine, is 20%, comparable to the overall success rate for all startups in the US (SPD Load, 2022). The success rate for pharma startups is 18% to 37% if success is defined as having an initial public offering or being acquired by another company and achieving required approvals (Melchner et al., 2021). Although non-biotech startups often create more net value, more biotech startups are acquired by established businesses than non-biotech companies, often before the initial public offering (Black, 2021). The most common reasons for failure in health tech are not determining the business’s value proposition and choosing the wrong strategy to prove it.
Biolyse. How To Start A Biotechnology Company Fast. Biolyse. August 21, 2018.
Black S. Are biotech companies really high-risk investments? ScienceBoard.net. January 7, 2021. Citing a study by the Bentley University Center for Integration of Science and Industry.
Melchner von Dydiowa G, van Deventer S, Couto DS. How large pharma impacts biotechnology startup success. Nat Biotechnol. March 2021;39(3):266–269. doi:10.1038/s41587-021-00821-x.
SCORE. Business Feasibility Analysis – SCOR# 4.15. July 29, 2021.
SPDLOAD. Startup Success Rate in 2023 by Stage, Industry, Location. SpdLoad. Accessed December 30, 2022.
University Lab Partners. Finding Funding for Your Biotech Startup. June 8, 2020.
Topic: Cost and time projections in the biomedical/biotechnology industry