How to split R&D and G&A expenses on a pre-revenue biotech P&L

A biotech CFO we work with was preparing a Series A data room in early 2026. The investor’s diligence team sent a standard request: what percentage of the company’s annual expenses was research and development versus general and administrative? The company had spent $2.3 million in the prior twelve months. The CFO spent three days pulling payroll records, lease invoices, and software receipts to reconstruct an answer. The data room deadline slipped a week.

Every invoice had been recorded correctly. The problem was that the chart of accounts had no function split. All expenses lived in one pile.

Why the split matters before you need it

For a pre-revenue biotech, the R&D and general and administrative (G&A) split on the Profit and Loss report (P&L) is not something to address when preparing for a fundraise. Investors use it to evaluate whether the company is investing in its science. Grant reviewers, including those administering Small Business Innovation Research (SBIR) and National Institutes of Health programs, use it to confirm that grant funds are supporting qualifying research. Auditors preparing reviewed or audited financial statements use it as a foundational P&L line.

When the split is absent from the books, it has to be reconstructed from scratch. A reconstructed number invites questions about how the allocation was made and whether it was applied consistently. That is not the conversation a company wants to have during a financing.

Where the split goes missing

All payroll goes into a single expense account. Most early-stage companies create one payroll line. Scientists, administrative staff, and executives land in the same account. When an investor asks what percentage of payroll is R&D, the answer requires reassigning every employee by function. At ten to twenty employees, that is a multi-day project with a high margin for error.

Lab and office facilities are recorded as one rent line. Laboratory space is an R&D cost. Conference rooms, executive offices, and administrative storage are G&A costs. When the full rent payment goes to one account, neither function’s cost is accurate. A company with a $180,000 annual lease that is 85% laboratory needs $153,000 classified as R&D and $27,000 as G&A. Unallocated, neither figure exists in the books.

Executive salaries are recorded as 100% G&A. A chief executive officer at a pre-revenue biotech often spends a meaningful share of their time on research direction, scientific advisory relationships, or regulatory strategy. That portion of the salary is an R&D cost. Recording the full amount as G&A overstates administrative overhead and understates the research investment.

Research tools and administrative software land in the same account. A laboratory information management system (LIMS) or electronic lab notebook (ELN) software is research infrastructure. It belongs in R&D. Accounting software, HR platforms, and email services are administrative tools and belong in G&A. Both often end up in a single “Software” or “Technology” line.

Insurance is not separated by coverage type. Directors and officers (D&O) liability insurance is a G&A cost. Clinical trial insurance and research liability policies support the science and belong in R&D. Combined under one “Insurance” account, neither category is visible on the P&L.

What the split looks like with real numbers

Here is one year of expenses for a 12-person pre-revenue company once the allocation was complete.

Before the allocation, the P&L showed $2.3 million in undifferentiated expenses with no R&D figure. After, the company’s answer to the investor’s question was 79%. The CFO produced it in two minutes from the books.

Why this matters beyond the data room

Grant reporting carries compliance risk. Several federal programs require recipients to show that award dollars supported qualifying research activities. When the books do not separate R&D from G&A, that documentation requires reconstruction. Reconstructed numbers, when audited, must be fully defensible.

The split is a useful management metric. A company spending 79% on science and 21% on overhead has a clear picture of its allocation. If that ratio shifts to 65/35 over two quarters, the books should surface it before it shows up as a cash flow problem.

What properly allocated books look like

For life sciences clients we work with, the R&D and G&A split is built into QuickBooks before the first payroll runs. Each employee is assigned a primary function and salary expenses post to the correct account automatically. Executives who split time between research and administration are set up with a documented allocation percentage reviewed quarterly.

Shared costs follow a written policy. Lab facilities are allocated by square footage. Shared subscriptions are allocated by headcount in each function. Insurance is separated by coverage type at renewal.

At month-end close, the R&D and G&A totals are checked against the prior month. A shift of more than five percentage points triggers a review before the books are finalized.

Best practices for pre-revenue biotechs

• Set up separate QuickBooks expense accounts for R&D and G&A salaries from the start. A retroactive allocation is better than no allocation, but it requires full documentation of every assumption.
• Write down the allocation basis for every shared cost before the first allocation is recorded. State the method explicitly: square footage for facilities, headcount ratios for shared services, documented time percentages for executive salaries.
• Review executive time allocations at least quarterly. A CEO who spent 40% of their time on research in one quarter may spend more or less in the next. The allocation should reflect actual time, not a fixed estimate set at company formation.
• Separate insurance costs by coverage type at each renewal. Clinical trial and research liability coverage are R&D. D&O is G&A.
• Include the R&D percentage as a line in the monthly close package. Track it over time. A shift of five or more percentage points is worth examining before it becomes a question in a data room.

Three questions worth asking

1. If a Series A investor asked today what percentage of your annual spend is R&D, how many business days would it take to produce a defensible number from the books?
2. Are employee salaries recorded by function in QuickBooks, or does all payroll land in a single expense account?
3. Is the allocation methodology for shared costs, including executive time, lab facilities, and software subscriptions, written down and available for an auditor or investor to review?

If those answers are uncertain, the books are not set up for institutional financing or federal grant compliance. The fix is a chart-of-accounts restructure, not a complex analysis.

Send us a recent P&L and a list of your team with their roles. We will tell you whether the R&D and G&A split is in the books, or whether it needs to be built before the next funding round.