Four Tips for ​Managing Your Startup's Burn Rate

Cash Flow Basics
a man jumps off a cliff using a hang glider made out of a paper plane

The excitement of starting a new business and changing the world can be exhilarating. In the emotion of the startup phase, it is easy to lose sight of the fact that there are many unknowns.

The prospective customers that committed to buying your first prototype may back out. The employees you count on most might be approached with a different offer. If you overspend on unnecessary overhead, then you increase your risks in the face of storms that will inevitably come your way.

The first thing to do is ensure you are clear on your cash flow. We're a little biased, but we feel like Pulse provides that framework to see the past, present and future for your cash position. It helps you make decisions that are informed and factual.

If you want to manage your burn rate, then here are four ways to integrate cash flow management into growing your business:

1. Examine the Impacts

When you decide to make a large purchase, input the expense into Pulse and see how this will impact your cash position. You can get an instant view of what will happen months down the road from your decision.

When we want something - new computers, office furniture, company cars, etc. - our emotions can pull us in a hypnotic way. If you practice a bit of personal process and look at the numbers before you make the decision, you can move from emotion to logic. If the numbers work out and the risk is small, then at least you can quantify the impact.

2. Delay A Month

The likelihood is that you can get by without committing to a new subscription or a new purchase. In the cases where it is clear you cannot, then you have little choice.

But delay a month and see if you can get by without the extra purchases. Every new tool or commitment you make will increase your monthly burn rate.

If you are pre-revenue, especially, then delay on the niceties until you have revenue to account for your purchases.

This little habit in your business approach will keep you from a lot of headaches and heartaches. You will find that the things you thought were so important could simply be luxuries. See if you can get by without new overhead or costs. Learn to take delight in delaying.

3. Plan Around The Next Year

You can also set up predictive models for income in the next year. This will help you understand your cash flow over months. When you have this picture, go back into your Pulse numbers and play with different scenarios. This will provide a sensitivity to what may happen in reality.

After you get a good sense of probabilities, set up an expense category that allows you to have a spending account on overhead items you may want to accelerate your goals, increase morale or reward employees.

This tells you how your expenses will fit into a bigger picture. Use this as a budget item and don't exceed it.

Pulse effectively helped you forecast with a budgeted item around a burn rate you are comfortable with.

4. Analyze Before Jumping

Ultimately, your burn rate can be managed with an approach that centers around analysis before emotion. Take a look at what the numbers are telling you and understand your risks before committing to new expenses.

This helps curb the appetite for new and shiny things that may not be necessary. Make it a management approach and you will mitigate the possibilities of running out of cash prematurely through the startup phase of your business.


This is a guest post from business consultant Don Dalrymple.