By Shawn Elliott, CFO | High Rock Accounting
So here is a question I get pretty often from founders and CEOs in the biotech and pharma space, and it usually comes up right around the time a Series A closes or a significant grant award hits the bank: “Do I need a real CFO now?” And what they mean by “real” is full-time, in the office, on the org chart. My honest answer is almost always the same: probably not yet, and here is why.
The pre-commercial stage in biotech and pharma is genuinely different from any other kind of company I have worked with in my career. You have got burn rates tied to clinical trial phases, grant income that has to be classified just right, FDA milestone timelines that change your runway math every quarter, and investors who want a board-ready financial package delivered on a silver platter each month. But your revenue is typically zero. That combination creates a very specific financial need, and a fractional CFO can usually handle the whole nut of it without you having to carry a $300,000 to $400,000 salary before you have a single dollar of product revenue.
I spent years in specialty pharmacy before landing at High Rock, and I watched what happens when healthcare companies staff for the future before the present actually needs it. You end up with overhead that compresses your runway and an employee who spends two-thirds of their week on tasks a good fractional team would have handled in a quarter of the time. Pre-commercial biotech is not the place for that kind of burn.
What Pre-Commercial Biotech and Pharma Companies Actually Need from a CFO
Just to give you some context, when I say pre-commercial I mean the span from seed or Series A through whatever the milestone is that puts you on a revenue-generating path. For most biotech and pharma clients, that is somewhere between Phase I clinical trials and NDA or 510(k) clearance. That window can run anywhere from three to eight years, and the financial complexity during that time is real.
Grant Income Classification
This one trips people up more than almost anything else. If you receive an NIH SBIR/STTR award, an ARPA-H grant, or a foundation grant, the classification under GAAP is not automatic. *1 Depending on the structure of the award, you may be looking at conditional contributions, contracts with the government, or exchange transactions, and each one gets treated differently on the income statement and in your disclosures. I have seen companies carry grant income in the wrong bucket for two or three years and then have to clean it all up right before a due diligence process. That is not a fun conversation to have with investors.
Clinical Trial Expense Allocation by Phase
Phase I, Phase II, Phase III. Each one has a meaningfully different cost profile and each one needs to be allocated correctly between R&D expense and G&A. *2 CRO fees, site costs, regulatory filing expenses, investigational product manufacturing, the whole run of it needs a clean chart of accounts that separates what is directly tied to the science from what is overhead. Investors and future acquirers are going to look hard at your R&D to G&A ratio, and if your chart of accounts is a mess, that ratio is going to look wrong even if the underlying business is healthy.
Burn Rate Dashboards Segmented by R&D vs. G&A
A burn rate number by itself does not tell you much. What tells the story is how that burn breaks down between R&D spend and general and administrative expenses. A company burning $800,000 a month with 85 percent of it in R&D looks very different to an investor than one with a 60/40 split. *3 And when you layer in FDA milestone timelines, you need to be able to show how each milestone event changes your forward-looking cash position. That is the kind of modeling work that a fractional CFO team builds into the monthly financial package.
FDA Milestone-Linked Runway Modeling
Runway is not a static number in this space. When you hit a Phase II endpoint, your cost structure shifts. When you file an IND, your burn picks up. When you get a CRL instead of an approval, everything changes. Yep, the monthly close has to account for all of that, and the projections have to be updated in real time so you are never walking into a board meeting with a cash runway slide that is six weeks stale.
Investor Reporting and Board Packages
I talk to a lot of pre-commercial biotech founders who are surprised at how much time goes into putting together a proper board package. When you have venture capital or strategic investors in the mix, they have seen hundreds of these decks and they notice immediately when the numbers do not reconcile or when the narrative does not match the financial statements. A good fractional CFO team builds this package month over month so there are no surprises, the roll-forward schedules are clean, and the audit trail follows breadcrumbs all the way back to the source documents.
GAAP Compliance Without the Full-Time Price Tag
Accrual basis GAAP is non-negotiable if you are taking institutional money or planning any kind of liquidity event. That means your financial statements need to reflect expenses in the period they are incurred, not when the cash goes out the door. For a clinical-stage company, that includes accruing for CRO milestones, recognizing grant income on the right schedule, and making sure your equity compensation is expensed correctly under ASC 718. *4 All of this is table stakes for a fractional CFO team that works in the biotech and pharma space.
How the Fractional Model Actually Works for This Space
Here is how I typically explain it to a pre-commercial biotech CEO: you get a senior CFO-level brain on your business without paying for a full-time executive. At High Rock, that means I am personally in the account alongside a controller and a bookkeeper, and we are structured as a team rather than a solo consultant who disappears when things get busy.
The tech stack we work with in this vertical is Sage Intacct for the accounting platform, because it has the dimensional reporting and grant tracking capabilities that healthcare and life sciences companies need. *5 On the payments and expense side, Ramp or Brex for corporate card and AP automation, Bill.com for vendor payments when needed, and ADP or Paychex for payroll depending on the size of the team. We are not dragging anyone back to a platform that was built for a small retail shop. The tools matter when you have complex revenue recognition and grant compliance requirements.
The monthly cadence looks like this: books close within five to seven business days, a draft financial package goes out for review, we do a quick gut check call to walk through any variance from prior period or from budget, and then the final package is ready for the board. We are just a Slack message away in between, so if your CMO needs a quick sanity check on a CRO estimate before signing a contract, we can pull that together fast.
Pricing is package-based, not hourly, because nobody should feel like they are getting nickel-and-dimed every time they pick up the phone to ask a question. We scope the statement of work based on what you actually need, price it flat each month, and adjust as the company grows.
When Does a Full-Time CFO Start to Make Sense?
I want to be upfront about this because I think it is the honest answer: there does come a point where a full-time hire makes more sense than a fractional arrangement. And getting that timing right actually protects your runway rather than burning it.
In my experience, the transition point for a biotech or pharma company typically shows up when a few things converge at the same time.
Post-Commercial Launch with Growing Revenue Complexity
Once you have product revenue, especially if it involves payers, specialty pharmacy channels, or multi-channel distribution, the financial reporting complexity goes up significantly. You are now dealing with gross-to-net revenue adjustments, rebate accruals, chargebacks, and potentially ASC 606 revenue recognition that needs to be revisited. *6 At that point, having a full-time CFO embedded in the commercial team starts to pay off in ways that a fractional arrangement cannot quite replicate.
Pre-IPO or Pre-Acquisition Readiness
If you are 12 to 18 months out from an IPO filing or a significant M&A transaction, you need someone who is going to live inside the company full-time during that preparation. The SEC reporting requirements, the S-1 process, the documentation demands during a 363 sale or a strategic acquisition, those are situations where a full-time CFO who knows your business inside and out is genuinely worth the cost. That is not a knock on the fractional model. It is just a different job at that point.
Revenue Run Rate Above $50 Million
The specific number varies by company structure, but once you are consistently above $50 million in annual revenue with multiple product lines or business units, the CFO function usually needs to be inside the building. You are dealing with treasury management, M&A integration, investor relations at scale, and a finance team of five or more people who need an executive leader on-site. *7
Board or Investor Mandate
Sometimes it is not really a question of what the company operationally needs. Series B or C lead investors occasionally include a full-time CFO hire as a condition of the round, particularly if there is a public market path on the roadmap. In that type of scenario, the fractional team can actually help you prepare for that hire by keeping the books clean and the reporting tight so the new CFO walks into a well-organized finance function instead of a cleanup project.
The Transition from Fractional to Full-Time
When a client we have been working with is ready to make that transition, we try to make it as smooth as possible. That means thorough documentation, clean roll-forward schedules, a system and process handoff that gives the incoming CFO a genuine running start. We have done this a few times now and the ones that go smoothly are the ones where the books have been squeaky clean all along and the documentation follows the breadcrumbs the whole way back.
In some cases, the fractional team stays on in a reduced capacity after the full-time hire, supporting the controller function or specific project work. In other cases, the handoff is clean and complete. Either way, the goal is the same: you end up with a finance function that is ready for whatever comes next.
Why the Fractional Model Works So Well in Pre-Commercial Healthcare
I think it comes down to this: the financial complexity in pre-commercial biotech and pharma is real, but the volume of transactions does not justify a full-time executive. A Phase I or Phase II company might have 50 to 150 vendor invoices a month, a handful of grant drawdowns, a payroll, and a monthly investor report. That is meaningful work and it needs to be done right, but it does not require someone sitting in the CFO chair full-time at a $300,000 to $400,000 all-in cost before you have earned a dollar of revenue.
What it requires is someone who knows the space, knows the compliance requirements, knows how to build a board package that institutional investors actually trust, and is accessible when questions come up fast. That is exactly what the fractional model is designed to deliver in that type of realm.
If you are a pre-commercial biotech or pharma company and you are trying to figure out what level of financial support you actually need, I am happy to sit down and walk through it. No pressure, just a genuine conversation about where you are, where you are headed, and what makes sense for your stage and your investor base.
Want to talk it through?
Join me at Hawaiian Shirt Friday Ask an Accountant Hour every Friday at 10AM PT, or grab a 30-minute slot on my calendar and we can talk through what your company actually needs right now.
Sources
*1 FASB ASC 958-605 (Not-for-Profit Entities, Revenue Recognition) and ASC 606 govern the classification of grant and contract income for biotech entities. FASB Accounting Standards Codification, accessible via asc.fasb.org.
*2 Phase-level clinical trial cost structures are documented extensively in FDA Guidance for Industry and in Ernst & Young and Deloitte life sciences accounting practice guides. R&D vs. G&A cost allocation follows ASC 730.
*3 Investor expectations for R&D to G&A burn ratios in clinical-stage biotech are reflected in public biotech benchmarking reports from Silicon Valley Bank and Jefferies Healthcare Investment Banking annual life sciences reports.
*4 ASC 718 (Compensation: Stock Compensation) requires expensing of equity awards over the vesting period. ASC 730 governs R&D cost treatment. Both are FASB standards accessible at asc.fasb.org.
*5 Sage Intacct is widely used in the healthcare and life sciences sector for its dimensional reporting and FASB-compliant grant tracking. See Sage Intacct healthcare solutions at sageintacct.com.
*6 Gross-to-net revenue adjustments in pharmaceutical commercial operations (chargebacks, rebates, returns) are governed by ASC 606 and represent a key complexity at the post-commercial launch stage. See FASB ASC 606-10.
*7 CFO hiring thresholds and fractional-to-full-time transition benchmarks are commonly cited in venture capital portfolio management guidance, including materials from a16z Bio and OrbiMed Advisors.
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