Biotech and Deeptech Chart of Accounts to Track R&D Costs by Project

A Guide to the Biotech and Deeptech Chart of Accounts for R&D Cost Tracking

For an early-stage biotech or deeptech company, your Research and Development budget is not just a line item; it is the entire company. A well-structured system for tracking R&D expenses is fundamental to managing cash, satisfying investors, and claiming tax incentives. Yet, the financial reports for most startups at this stage often show a single, opaque number for R&D spend. Using core bookkeeping fundamentals from day one prevents this data from becoming disorganized.

This lack of detail creates significant risk. When an investor asks for the specific burn rate on your lead compound, or when your accountant needs to prepare a UK R&D tax credit claim, a last-minute scramble through spreadsheets and invoices begins. Poorly organized financial data obscures project profitability and complicates compliance, putting your funding and runway at risk. Getting this right is not about complex accounting, but about building a clear, simple structure from the start that scales with your ambition.

Beyond a Single "R&D" Bucket

A Chart of Accounts (COA) is the backbone of your financial system. It is a complete list of every account in your general ledger, organized into categories like assets, liabilities, equity, revenue, and expenses. For most businesses, a standard COA is sufficient. But for R&D-intensive biotech and deeptech startups, the generic “R&D Expense” bucket is a trap.

Lumping all research costs, from a lead scientist’s salary to a CRO invoice and lab consumables, into one account makes it impossible to answer critical business questions. You cannot easily see how much you are spending on people versus external services, or which costs are rising fastest. More importantly, this lack of granularity creates major compliance headaches.

For US companies, US Section 174 requires specific software development and research personnel costs to be capitalized and amortized. A single R&D bucket makes these calculations manual and prone to error. For UK companies, a defensible claim for UK R&D Tax Credits (HMRC) requires a clear separation of qualifying costs, like direct staff and consumables, from non-qualifying costs. A generic COA makes this mandatory reporting inefficient and risky.

A Scalable Framework for R&D Financial Reporting

The solution is to expand your R&D expense category from one account into a logical, three-part structure. This approach organizes costs by their nature, providing instant clarity into where your most critical capital is going. This framework is designed to grow with you, from a pre-seed startup with a single project to a Series B company managing multiple clinical trials.

The three core categories are:

• R&D Personnel Costs: The "Who" involved in your research.
• Direct Project Costs: The "What" you are spending on to advance projects.
• Indirect Overhead: The "Where" your research takes place.

Part 1: R&D Personnel Costs (The "Who")

This section of your COA is dedicated to all costs associated with the people directly conducting research. It is more than just gross wages. A well-structured setup provides a full picture of your team's cost, which is essential for accurate budgeting, project costing, and tax reporting. It is critical to distinguish between staff directly involved in R&D activities and those in administrative or support roles (G&A), as their treatment under accounting standards and tax regulations differs significantly.

For US companies, this detailed tracking is not optional; it is fundamental for complying with Section 174 capitalization rules. For UK startups, it is just as important for identifying the qualifying staff costs that form a large part of an R&D tax credit claim. What founders find actually works is a structure like this in your accounting system:

• 6100: R&D Personnel Costs
  • 6110: R&D Salaries & Wages
  • 6120: R&D Payroll Taxes
  • 6130: R&D Employee Benefits (Health, Pension)
  • 6140: R&D Contractors & Consultants

This level of detail allows you to see the fully loaded cost of your research team at a glance, without needing to run separate payroll reports and manually consolidate data.

Part 2: Direct R&D Project Costs (The "What")

Direct R&D costs are the tangible, external expenses incurred specifically for your research projects. These are the items and services you purchase to advance your science and technology. This category includes everything from lab supplies, chemicals, and reagents to specialized software used for a single project. It also covers significant expenses like fees paid to a Contract Research Organization (CRO) for preclinical studies or manufacturing costs for test batches from a Contract Development and Manufacturing Organization (CDMO), which are central to `biotech expense management` and `clinical trial accounting`.

Separating these costs is vital for both financial management and compliance. For instance, UK R&D Tax Credits (HMRC) requires separation of qualifying costs like consumables from non-qualifying costs to make a defensible claim. By having distinct accounts, you make this process straightforward for your accountants and maximize your potential claim. A practical COA structure for these `research expense categories` would look like this:

• 6200: Direct R&D Project Costs
  • 6210: R&D Lab Supplies & Consumables
  • 6220: R&D CRO & CDMO Services
  • 6230: R&D Software & Subscriptions (Project-Specific)
  • 6240: R&D Equipment & Maintenance
  • 6250: R&D Patent & Legal Fees

This setup provides immediate insight into your external R&D spend and simplifies reporting for investors as well as research grant accounting.

Part 3: Indirect R&D Overhead (The "Where")

Not all R&D costs can be tied to a specific project. Indirect overhead covers shared resources and facilities that support the entire research function. This includes the portion of your rent allocated to lab space, a share of utilities like electricity and internet, and general-purpose lab management software not dedicated to a single experiment. Without tracking this, you are underestimating the true cost of your research operations.

The key is to establish a reasonable allocation methodology. For early-stage startups, this is often based on headcount (if 7 of your 10 employees are in R&D, allocate 70% of shared costs to R&D overhead) or square footage (if your lab occupies 1,000 sq ft of a 1,500 sq ft facility, allocate two-thirds of rent). This does not need to be perfect, just logical and consistently applied. Adherence to reporting standards like US GAAP in the United States or FRS 102 in the UK requires that costs are recognized and allocated on a consistent basis.

A sample COA structure for this is:

• 6300: Indirect R&D Overhead
  • 6310: R&D Facilities & Rent (Allocated)
  • 6320: R&D Utilities (Allocated)
  • 6330: R&D General Software (Shared)

This final piece gives you a complete and accurate picture of your total R&D investment, crucial for effective `deeptech project budgeting`.

How to Track R&D Expenses in Biotech Startups Using Classes

Having a structured COA is the first step. It tells you *what* you spent money on. The second, equally important step is to track *why* you spent it. This is where Classes in QuickBooks or Tracking Categories in Xero become essential tools.

Think of it this way: your COA is a fixed list of expense types (Salaries, Lab Supplies, Rent). Classes or Tags are flexible labels you create to represent your different projects, programs, or grants. Examples include 'Project A - Compound XYZ', 'Platform Tech Dev', or 'Grant 123'. Every time you record a transaction, you assign it both an account from your COA and a class label.

Example: Coding a CRO Invoice

Imagine you receive a $20,000 invoice from a CRO for preclinical toxicology studies on your lead drug candidate. In your accounting software, you would code this transaction as follows:

• Account: 6220: R&D CRO & CDMO Services. This tracks *what* the expense was (a CRO fee).
• Class / Tracking Category: Project A - Compound XYZ. This tracks *why* the expense was incurred (for your lead program).

By consistently applying this two-part coding to every R&D transaction, you unlock powerful R&D financial reporting. Instead of a simple Profit & Loss statement, you can run a “Profit & Loss by Class” report. This is where the real insight comes from.

Example: Profit & Loss by Class Report

This report instantly shows you the burn rate for each specific project, answering investor questions and informing strategic decisions about resource allocation. Here is a simplified example of what this report reveals:

Project A - Compound XYZ: Total Spend $85,000

• 6110: R&D Salaries: $50,000
• 6210: Lab Supplies: $15,000
• 6220: CRO Services: $20,000

Platform Tech Dev: Total Spend $35,000

• 6110: R&D Salaries: $25,000
• 6210: Lab Supplies: $10,000

Total R&D Expense: $126,000 (including $6,000 in unallocated costs)

This detailed view transforms your accounting system from a compliance tool into a strategic asset. For practical setup tips on recording transactions consistently, see our Journal Entry Best Practices for Startup Bookkeepers. Using classes correctly is a repeatable step every time you code payroll or accounts payable.

Putting Your R&D Chart of Accounts into Practice

Implementing a robust system for tracking R&D expenses does not require a full-time CFO or enterprise-level software. It requires a thoughtful setup in the tools you already use, like QuickBooks or Xero. Following a weekly bookkeeping checklist helps keep your books investor-ready and your data accurate.

The goal is clarity, not complexity. A Pre-Seed startup might begin with the three main categories (Personnel, Direct, Indirect) and just two or three high-level projects as classes. As you approach Series A and your pipeline expands, you can add more granular accounts, such as separating CRO and CDMO costs, and create new classes for each program or clinical trial.

For US-based startups, this structure is foundational for managing Section 174 amortization requirements. For those in the UK, it provides the clean, defensible data needed for a successful R&D tax credit claim. For all biotech and deeptech companies, it provides the financial visibility needed to manage cash burn effectively, report to investors with confidence, and make informed decisions about your most critical asset: your R&D pipeline. If you need to formalize equipment treatment, see our Fixed Asset Recording for Startups guide on capitalizing and depreciating assets properly.

By moving beyond a single R&D bucket, you build a financial foundation that supports your scientific and commercial goals. This ensures your accounting system helps drive your company forward instead of holding it back. See our bookkeeping fundamentals hub for more on daily transaction processes.

Frequently Asked Questions

Q: How should we track salaries for staff who split time between R&D and administrative roles?

A: The best practice is to use timesheets or a reasonable, documented allocation method. For example, if a CEO spends 60% of their time on direct R&D strategy and 40% on fundraising (a G&A activity), you would allocate their salary costs accordingly between the `R&D Salaries` account and a `G&A Salaries` account.

Q: At what stage is this detailed R&D tracking necessary? Should a pre-seed company bother?

A: It is best to start from day one, even if it is simple. A pre-seed startup can begin with the three main R&D categories and just one or two project classes. This creates good habits and a scalable foundation, preventing a costly and time-consuming data cleanup project later on when you are preparing for a Series A or an audit.

Q: What is the difference between R&D equipment costs and consumables?

A: Consumables (Account `6210`) are items used up during research, like chemicals, reagents, or petri dishes. Equipment (Account `6240` or capitalized as a fixed asset) refers to durable items with a useful life of more than one year, such as a microscope or a PCR machine. Accounting rules often require equipment above a certain value to be capitalized, not expensed immediately.

Q: Can we just use project codes in our expense management software instead of Classes in QuickBooks or Xero?

A: While project codes in expense software are useful for initial tagging, they must be mapped correctly to Classes or Tracking Categories within your formal accounting system. Relying only on external tags creates a disconnect and prevents you from generating accurate, integrated financial reports like the 'Profit & Loss by Class' directly from your general ledger.