Ways to reduce your cash burn rate

by Diala Atef 26 Jun 22 6 minutes


It’s not easy to start your own business. To leave your main source of livelihood and head towards starting your own business. It’s adventurous to risk your stable financial affairs and direction without studying or creating a well-structured plan. Cash flow can be tricky for a new business owner to understand. For most, it’s something that’s not taught in school. In fact, becoming a small business owner actually seems like a great way to ensure you’re always running out of cash. But as a business owner, it’s important to track your cash flow and do all you can to increase your bottom line.

Therefore, before taking a risk like that you need to ask yourself first some questions.

  • Do you know how much cash you have on hand?
  • How much cash will be used per month? Per quarter?
  • How much do you have to invest with your own money?

There are a few simple tips to care about while tracking your cash flow.

cash flow

If you don’t answer these questions, you’re definitely putting your business in danger. Cash is the lifeblood of a business and knowing your position and usage is vital for maintaining a healthy business profitable, but without enough cash to cover expenses.

What is the cash burn rate?

The burn rate is used by startup companies to track the amount of monthly cash. The company spends before generating any income. It’s a measure of negative cash flow. 

The importance of cash burn:

Calculating the cash burn will answer your question.

  • Am I putting my cash flow in a positive direction?
  • How long can I depend on my cash based on my current rate of spending?

Calculating your cash burn monthly helps you to  determine your current situation and health of your business and how much cash you have available to cover expenses, so that you have not to be aware about sudden lack of cash in the bank.

The cash burn rate is still important for startups and small businesses in the early stages of growth. When your business is still not profitable yet. Absolutely in some industries it takes a few months, maybe years to achieve profitability, for this reason you need to keep a close eye on your cash flow continuously.


  • After calculating the cash burn rate you also have to know what is the cash runway and the importance of calculating it.


What is the cash runway?


The cash runway is the number of months until cash runs out, how long your cash will last at your current cash burn rate. 

The normal pattern for startups is to get funded, use turns out. It’s a huge concern for funded startup companies—particularly in the case you’re working with venture capital or angel investment.


Is high or low cash burn rate better?


It’s better to have a negative cash burn rate. That means you are building your cash reserves, not using them up. There are certainly cases where investing your cash in growth is a good idea. 

Ways to reduce your cash burn rate:

If your cash burn rate is higher than your expectations. You’re focusing now on how to reduce it and increase cash. There are some ideas that can help you reduce your cash burn rate.

  • Increase your reserves

The more cash you have got in savings the longer you can ride out a dip in deals. But in case the emergency looks like it’ll be long, and you know current operating cash will run out before you extend recovery in sales, you will have to get additional funds.


  • Focus on increasing your revenue 

Try to find ways to increase your traffic and get more prospects, in addition to boosting your conversion rate.


  • Reduce your payroll expenses

For labor-intensive businesses, deferring new hires, laying off nonessential workers, or limiting benefits can lead to big savings. Make sure any cuts are smart and  sustainable.


  • Close the parts of the business that no longer turn in revenue

There’s a delicate balance to be struck when closing down parts of your business. You must do it slowly, knowing that each step is worsening the situation while simultaneously reducing its impact on the rest of the organization. You may have diversified into other markets, expanded into new customer segments, introduced new products, and bolted on components to take advantage of a past opportunity.


  • Negotiate for better payment terms 

Any transaction that contributes value to your business is a good one. This is especially true if it helps you improve in a key area—like improving cash flow. Just like you need oxygen to breathe, or water to drink, you need money coming in to run your business. Veering from that path can have serious negative effects on your bottom line. But there are things you can do when you find yourself struggling to make ends meet, and the first step is proactively engaging with those who work with your business every day.


Now, you know what the cash burn rate and cash runway is and how to reduce it, and also learned the importance of calculating it continuously. On the other hand, you have to be updated with every situation that can affect your business. So, you have to take all your precautions to run your business wisely.


If there’s one thing that startups have in common, it’s that their cash balances are rarely stable. Factoring all unexpected costs into your burn rate and cash runway will help you measure, track, and predict how much money you need to keep the business afloat, and how long you have until the money runs out. It doesn’t have to be an oversimplified process. Just remember to factor all of your costs (not just direct expenses) into your calculations, and take plenty of time to plan as much as possible before you spend a dollar.

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