To understand how to check your cash flow and reduce cash burn, you need to understand what cash flow and cash burn means. Cash flow is not profit, not cash, but it is the money going in and out of your business. Cash burn is basically how quickly a company spends its cash reserves, it is the average monthly costs. It is very important as it helps the company determine, how long it will be till the company runs out of finances.
Almost all startup companies, deal with negative finances during the start of their business. As the companies are focused on growing their business the cost to do this generally outweighs the revenue the company might be making during the early stages.
Startup companies need to understand their burn rate and how to control it before it ends up affecting their business drastically. It can also end up in them losing their business completely.
There are some practices that you can introduce to your business to make sure it is successful:
- By reviewing your burn rate at least monthly, it will give you a clear financial picture.a
- Make sure your cash flow is positive, negative cash flow indicated that your business is not doing well.
- Keeping a tab on your burn rate daily, to have control over the expenses.
- Make sure each and every expense is being tracked and coded.
- Reduce costs to decrease cash burn.
- Do not have stagnate money reserves, balance the money so it is working to generate growth.
- Decide well in advance if you need additional funding.
Your company needs to keep a manageable burn rate, by employing these practices into your business. The slower your burn rate, the better it is for your business, as a slower burn rate garners a better chance of getting funding, and starts making a profit.
Do you have any tips or tricks to reduce cash burn? Let us know in the comments!
