Will burning your Cash fetch you more customers? Or is it that they don’t have anything to do with Cash burn? If at all it has, how to utilize cash burn for customer acquisition? Is cash burn directly proportional to customer acquisition? Let’s see how they are related to each other.
What is Cash Burn?
Cash burn simply accounts for the net negative cash flow of a company.
It is quoted in terms of cash spent per month.
Burn rate is a big concern for funded startups. The typical pattern is to get funded, use that cash to build the business and then aim high to get to positive cash flow. Be it any venture, cash burn demands a lot of attention, from the point of view of strategy, from the point of view of execution, from the point of view of cash runaway! Positive cash flow has to be assured before reaching the stage of runaway. If the shareholder’s capital is exhausted, the company will either have to start making profit or find additional funding or close down.
What is Cash Runaway?
Cash Runaway is how long your cash will last at the current burn rate before you completely run out of money.
Being in the initial stage, may be with feeble experiences of the market, one can always learn some tricks to spend cash wisely. Let us explore what can be done to save us from such a situation.
Also read: Ways to make easy money over internet
Have a lower burn rate
A lower burn rate is better. Be focused in building your cash reserves, not using them up blindly. There are certainly cases where investing your cash in growth is a good idea, whether it is funded startups or bootstrapped companies that are trying to grow. But only after having made it sure that you plan for the cash burn and then track your progress. If cash reserves are burned faster than expected, it’s a hint of trouble penetrating in slowly. So it is inevitably important to keep the end in mind and monitor the cash flows.
But the question is HOW????
If your cash burn rate is higher than you want the numbers to change are pretty simple. You need to increase your incoming cash, decrease your outgoing cash, or both. So the goal is to take 5 minutes now, turn off your notifications, breathe and then focus on this potent piece of ideas to ignite your mind.
1. Generate more revenue.
For this you have to look out for great ways to boost your traffic – something that acquires customers. More sales would translate into more money coming in.
2. Descend your payroll expenses.
This accounts to the total sum of money paid to the employees. If it is a labor intensive business, then focus on deferring new hires and more than that, lay off nonessential workers. Make sure that the cuts are smart and sustainable to the business.
3. Reduce your direct costs
Direct costs are the costs incurred in the raw materials required for the product. For low margin businesses, finding ways to minimize raw materials and other direct costs can make a big difference in the cash flow.
4. Reduce other expenses.
Revise the budget and if there are any expenses that’s not contributing in the success of the company, eradicate it. Ditch the revenue streams which are not profitable.
5. Encourage sales in cash.
Getting the money right away ensures that the product is been sold. Whenever there’s a choice of immediate transaction over delayed ones, make sure that the former is preferred. Bill sooner and collect faster.
6. Pay your bills slowly
Once a business tycoon, in one of his interviews, promptly mentioned that a ‘pakka businessman’ holds the cash with him as long as he can. So take advantage of it, unless there’s a discount or certain incentives for paying sooner.
7. Sell off excess inventory.
Optimum amount of inventories are useful but an excess of it is a waste as it is not as useful as having the equivalent amount of cash, unless the inventory being talked about is fiercely trending in the market.
8. Hold off on major purchases.
Holding onto the tough situations of money, wait for any big capital investment, unless it’s an investment which starts paying off right away.
9. Raise additional funds.
If nothing of the above works out for your firm, even after controlling the negative cash flows and boosting the positive cash flows to maximum extent the cash burn rate is still too high, then you may either raise additional funds from VCs or expand the bootstrapping for your business. It’s done in case when you’re dead sure about your business model and it’s success.
I’d love to hear more on how to monitor the cash burn in any startup from you through the comment section below.
