For high-growth businesses, knowing how to manage burn rates is essential.
With the right digital tools, you can have complete control and visibility of your cash flow and employee spending, reduce your Days Sales Outstanding (DSO), and forecast more accurately.
Below, we’ll take a look at the importance of managing burn rate, the best modern strategies for doing so, and three digital tools that can help extend your cash runway while you scale.
What is cash burn rate and how is it calculated?
Burn rate, or the rate at which a company spends its initial capital, is a sensitive topic in the scale-up community because of how difficult it is to manage. As a measure of negative cash flow, scale-ups and investors use it to track monthly the amount of cash that a company spends before generating its own income.
It’s also a way to find out how much time the company has before it runs out of money – its runway, which is calculated by dividing what’s in the bank by what is spent each month.
Burning cash too fast can result in a company going out of business, while burning cash too slowly can be a sign that the company isn’t focused on investing in its future.
What are the best modern strategies for managing burn rate?
Traditional advice for reducing cash burn rate included taking drastic measures, such as layoffs and employee pay cuts, selling company assets, increasing sources of income, and issuing debt or equity.
However, these measures are typically seen as desperate attempts to earn more time, rather than setting up companies for future growth.
Instead, it’s better to be proactive and develop a strategy geared towards cost control, raising income, and maintaining a positive cash flow. Modern financial technology can help you get more done, for less money, and more quickly.
Three digital tools to help you extend your cash runway:
Gaviti is a software designed to help users get paid accurately and on time. Its features help you stay on top of receivables, track open invoices, and set payment reminders for clients.
This platform simplifies the entire collections process and comes with benefits that have a direct impact on burn-rate management, including accelerating cash flow and reducing DSO by 30%. It also offers visibility into accounts receivables and sends timely reminders.
Integrations: Gaviti supports all Enterprise Resource Planning (ERP) systems, including custom accounting or ERP software.
Soldo is a company that offers a flexible spend and expense management platform that combines prepaid company cards with a range of features to help track spending, such as full reports and instant notifications.
The platform allows managers to have controlled access to company funds, create customisable budgets and rules for expenses and spending, bring transparency to spend tracking with real-time visibility, and speed up the reconciliation process through accounting integrations.
Soldo also makes receipt capturing and sharing transaction information easy, and can be integrated with accounting software like Sage, Xero, QuickBooks and NetSuite.
Float is a cash flow forecasting app that helps companies project their cash in the bank and gives them a real-time view of cash flow. The app offers forecasting, budgeting, and reporting features to help unlock actionable insights and make better decisions for the company.
It helps manage burn rate by planning and analyzing runway, burn rate and churn, offering future cash flow projections, providing a daily, weekly, or monthly view of cash flow, and gathering live data from accounting systems automatically to create an ongoing, rolling, accurate forecast.
Float can be integrated with QuickBooks, FreeAgent, and Xero to pull real-time data directly and prevent manual errors.