Next, we're going to forecast operating expenses.
Operating expenses are those things that
are not directly related to the building and selling of product.
In this case, that's where all of your engineering, so R&D comes in,
clinical trials, SG&A,
all of those things all come together on your operating expenses line.
So, generally for R&D, I knda think about it in two separate buckets.
The first is staff costs, and that's, again, just pulling information
from the employee cost analysis that we did at the top of the page.
The second thing is the equipment that we need to buy,
and usually when you talk to engineers there's a very specific piece of
equipment that you need to buy or, or pieces of equipment that you need to buy.
For these things we want to go ahead and
lay out when we plant to incur those costs.
This is just an example but in this case I put $50,000 in for
something called an FDM machine.
This is just an estimate.
Really, in your business,
you're going to need to build all sorts of different, or you need to
purchase all sorts of different other pieces of technology to help you build.
You want to lay out as much of that in here as you can.
So clinical trials are a critical part of building a medical device company.
There're also extremely expensive.
This is probably one of the biggest areas of expense that you need to understand.
A clinical trial and the costs of a clinical trial is directly related to
the technology that you're selling.
If you're selling a diagnostic monitoring device that does not have any therapeutic
effect on a patient, it's probably a lot cheaper trial to essentially run.
A diagnostic test on a patient.
If you're selling an implantable device that has life-saving capabilities,
like a defibrillator, an implantable defibrillator, the per-patient cost of
your trial is going to be very, very large, because you need to pay for
the surgery to place the device, you need to pay for the device itself,
you need to pay for all of the follow-ups that are related to seeing patients,.
So understanding the complexity of your technology and the the clinical
proof that you require is going to really drive a complexity of your trial.
Really the way to think about your clinical trial is
to understand the number of patients you need to treat.
And then try to understand the cost per patient,
associated with that particular trial.
Once you have that information that will make up
the bulk of the cost associated with the trial.
So here's an example clinical trial cost schedule.
So in this company, we've determined that we're going to do a clinical trial in
year three, and a clinical trial in year six.
The clinical trial is broken into a bunch of different individual costs, and
that includes things like insurance, regulatory consulting and filing,.
And then individual sites, and the site costs per site,
and then the site costs per patient.
So you need to figure out how many patients your trial is, and go ahead and
multiply all of that information together to determine the total
clinical trial costs.
Last but not least,
there are things called CROs Clinical Research Organizations.
These people can do everything from running your trial entirely for you,
to running the data collection part of your trial, to designing your trial.
So, these are often great opportunities to talk to somebody about how to budget for
a clinical trial.
So, if we now turn our attention to the SG&A,
that's the Selling General Administrative part of the workforce.
That includes people like, marketing and management and
all the other pieces of the work force.
We can add up their costs.
Again, I won’t go through all the details, but
you are going to start off with the staff costs and
rolling up that information you are going to roll up all the facility costs, and
then you're going to start adding things in like marketing and selling costs.
So, in this case this particular company is,
has a, actually a relatively modest marketing budget to help support.
All of the PR and branding work,
and trade shows that are required to support the medical device sale.
Last but not least there's just corporate overhead, and
there's a bunch of costs that I have added to this bucket.
Things like, intellectual property, lawyers, accounting, insurance.
All of these things need to get added up into SG and A.
When you do all of that you can get a full estimate for the total SG&A costs.
And, finally, to roll up all of your operating costs.
You combine your R and D and S,
G and A costs to get a total expenditure for given year.
And this is information that we'll plug directly into the income statement.