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Are you aware of the ticking clock that measures your business’s lifespan in months? For many business owners, seeing their company’s runway reduced to a finite number can be a daunting realization. Approximately 20% of small businesses fail within their first year, often due to cash flow problems. It can be unnerving to see your business’s lifespan reduced to a few months, especially if you’re operating in the red and relying on reserves.
Also read: What is Burn Rate & How it Impacts Your Business’s Financial Health?
Understanding and managing your cash burn rate can provide you with the vital opportunity to address potential issues before they become huge obstacles. So, how can business owners effectively manage burn rate and extend business runway? Let’s explore four powerful strategies that every business owner and entrepreneuer should know.
4 ways to manage your cash burn rate
If you’re operating in the red, running with an end in sight can feel like receiving a terminal diagnosis if you’re running on reserves. It’s better to know what’s wrong so you can fix it before it’s too late.
Cut your expenses
As you might expect, the easiest and most straightforward way to bring down your burn rate and add time to your runway is to spend less. Consider auditing your operating costs before anything:
- Is there anything you can do to bring your monthly fixed costs down since those are the big, recurring expenses that cut into your runway?
- Are you able to refinance any existing debts?
- If your operating margins are extremely thin, are you spending on the right things? Did you try to kick into a period of high growth before you were ready?
- Are you running as lean as possible?
- Is there a way to get your Costs of Goods and Services (COGS) down? Can you renegotiate contracts with suppliers, or swap out elements of your manufacturing with different, lower-cost materials?
Generate more revenue
If cutting your costs isn’t or won’t be possible, you might want to explore the possibility of earning more money for your business. Note: Opening new revenue streams often requires significant investment.
That said, you might be able to make smaller tweaks to existing systems to either tap into or build upon recurring revenue. Consider some of the following questions:
- Is your business model a fit for any sort of subscription- or retainer-based services?
- Can you offer an upgraded tier of service for an increased fee?
- Do you have any unsold inventory that you can get rid of for cheap? (Cheap is better than unsold, and the cost is already sunk, remember.)
Raise funds or apply for financing
You have a couple of options here. First, if you haven’t taken on investors before, maybe now would be a good time to consider them. Investors aren’t for every small business, but if you want to infuse capital into your business to give yourself more runway, you might look into raising money.
Second, and perhaps more practical, is to look into different types of small business loans. You can apply for several different types of financing to buffer your cash reserves, including business lines of credit and term loans. Both of these traditional options are a great place to start.
Control your cash flow
Above all, controlling your cash flow is the best way to manage your burn rate without dramatically altering anything. There are a few ways you can do this operationally:
- Can you collect on your outstanding invoices more quickly?
- Evaluate your current trade credit relationships. Can you incentivize your customers to pay in cash more, and more often?
- Can you pay your own invoices slower, or negotiate (or renegotiate) your own trade credit terms?
- Do you need to take advantage of invoice factoring to free up unpaid or not-yet-due invoices?
- Can you incentivise monthly customers to prepay yearly fees in full?
We can help improve cash flow
Simplify your accounts receivable and payables with Forwardly. Unlike traditional payment methods where you wait for days for business payments, Forwardly allows you to get paid and pay your bills in just 60 seconds. With only a 1% fee capped at $10 for getting paid and no fees for paying bills by bank, you can hold onto your cash longer and ensure timely bill payments every time.
The second part of managing your burn rate is taking advantage of all of the financial data you have. Forwardly’s free cash flow forecasting tool forecasts up to 12 months and will help you fill in vital pieces of your financial puzzle. Ready to streamline your finances with Forwardly? Get started today!
