Kruze Consulting has worked with numerous healthcare startup clients, that have collectively raised almost $1.5 billion in venture capital funding.
Our experienced CPAs and CFOs are sharing their insights on the most effective accounting practices for healthcare startups.
Keeping accurate financial records is crucial, especially when you’re about to raise money from your first investor. By this point, you should have your books in order.
As soon as possible, venture-backed healthcare startups should implement accounting software to maintain a record of their financial transactions. Ideally, this should be done when the company is in the process of closing its initial round of funding, or as soon as the founder begins to spend their own capital to get the business going. Here are some tips as you get the accounting started:
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Accounting for healthcare startups presents several distinct aspects compared to accounting for businesses in other industries:
Accounting for healthcare startups requires a thorough understanding of the industry’s unique financial aspects and the flexibility to adapt to the evolving needs of a growing business.
Healthcare startups should generate three primary financial statements: the Income Statement, Cash Flow Statement, and Balance Sheet. Additionally, they may need to monitor other financial and operational metrics to effectively manage the business and report to their board or investors. These metrics may include headcount, projected expenses, clinical trial progress, regulatory milestones, and key performance indicators (KPIs) specific to their business model.
The income statement offers insights into the company’s:
As healthcare startups advance through clinical trials, obtain regulatory approvals, and start generating revenue, the income statement becomes increasingly critical for evaluating their financial performance. And many grants will show up as income, so they should be properly booked.
The cash flow statement reveals the startup’s:
Healthcare startups heavily depend on the cash flow statement to track their cash position and identify potential cash flow challenges related to R&D investments, clinical trial expenses, and regulatory compliance costs. And businesses that need inventory or disposables may need to rely on the cash flow statement as well.
The balance sheet presents:
The balance sheet of a healthcare startup may vary from that of startups in other industries, depending on the company’s specific focus (e.g., medical devices, pharmaceuticals, or digital health). Accurate tracking and reporting of these items on the balance sheet are crucial for founders to understand the company’s financial position and make informed decisions, and sophisticated investors will rely on the balance sheet to understand the company’s financial position.
We advise founders to implement a customized chart of accounts (COA) for their healthcare companies. A chart of accounts is a framework that organizes expenses, assets, liabilities, and other financial elements within your accounting software. By creating a COA tailored to the specific needs of healthcare startups, you can simplify the process of managing the sector’s unique accounting requirements, such as tracking costs associated with clinical trials, regulatory compliance, and R&D.
For instance, a well-designed COA for healthcare startups might include categories for:
Although it may not be necessary to implement a fully customized COA from the outset, investing in the development of a tailored framework as your startup grows will yield long-term benefits. A healthcare-specific COA will help you better understand your company’s financial performance, make informed decisions, and communicate effectively with investors and stakeholders. Moreover, when your company undergoes an audit, a well-structured COA will make it easier for auditors to track your transactions.
Kruze only works with VC-backed startups, and we’ve created tailored advice for healthcare founders seeking outside investment from professional investors. Here are some tips to help you engage with VCs effectively.
Through our extensive work with funded healthcare startups that have collectively raised $1.5 billion in venture funding, we recognize that founders need to accurately forecast their future expenses. To assist with this, we provide our bookkeeping services at a fixed, recurring monthly rate, enabling our clients to predict their basic accounting costs each month. Experienced startup founders understand the importance of forecasting expenses for the coming months, and having set accounting expenses is a vital step towards effective cash management. Additionally, Kruze has a dedicated in-house tax team focused on helping startups maximize tax credits, manage sales tax, and more.
Contact Kruze today to learn more!
Your healthcare startup’s accounting partner should have a deep understanding of the unique challenges faced by businesses dealing with clinical trials, regulatory compliance, and R&D. This encompasses not only basic bookkeeping but also navigating the complex tax incentives available to healthcare businesses.
At Kruze, we combine cutting-edge automated software with the expertise of experienced controllers and CPAs. Our proprietary, highly automated bookkeeping software seamlessly integrates with QuickBooks Online, reducing your monthly accounting expenses while ensuring that your transactions and supporting details are securely stored in the industry-leading accounting software. Our accounting team boasts an average of over 11 years of experience.
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Various tax credits can help unprofitable, R&D-focused healthcare startups reduce their burn rate. Partner with an accountant who can provide both bookkeeping and tax services to maximize your government incentives.
Some of the most valuable tax credits for healthcare startups in the research stage include the R&D tax credit (calculate your credit here), and several state credits like the California Sales Tax Exemption, the Massachusetts Sales Tax Exemption, and the Maryland Biotechnology Investment Tax Credit. The R&D tax credit, which should apply to most healthcare startups conducting research in the USA, is typically the most significant of these incentives.
Client testimonials
We're huge fans of Vanessa and the folks at Kruze Consulting. They set up our books, finances, and other operations, and are constantly organized and on top of things. As a startup, you have to focus on your product and customers, and Kruze takes care of everything else (which is a massive sigh of relief). I highly highly highly recommend working with Vanessa and her team.
Vivek Sodera
Co-Founder @ Superhuman
Prior to Kruze, as a remote-first team, we were weighed down by a lot of the bureaucracy involved with having a distributed workforce. Kruze has supported us above and beyond basic accounting needs by ensuring we have everything we need to expand and support our team wherever they may be located
Zack Fisch
Pequity's Head of Operations & Legal
Avochato has been growing rapidly in the past year – in fact, too quickly for us to keep up with books, taxes, and budgeting for growth. Partnering with Kruze Consulting has been fantastic to manage, track, and analyze our finances while we continue focusing on building our customer base. Kruze’s team knows what startups need.
Alex De Simone
CEO @ Avochato
Everybody, go to Kruze Consulting. They do a great job. I personally can tell you, they've done a great job for our companies, including Calm.com. I'm sure they’ll do a great job for you.
Jason Calacanis
Angel investor
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