If you work in startups, you’re bound to have come across the expression known as ‘burn rate’, however, if you’re new to the industry there’s a chance this will be new to you. In simple terms, it purely revolves around how long your business can stay afloat until you start struggling financially and eventually, run out of money.
It’s important to understand how burn rate can affect your business, as this will indicate how much money your company is paying out versus how much of a return you’re making. By analyzing the difference, it’s easy to deliberate how long your business will survive if the negative cash flow remains at the same level. Most businesses measure their burn rate monthly, but when there are fears of a money crisis, it may be advised to monitor it on a weekly or daily basis. If you’re looking to reduce your start-up burn rate, what should you bear in mind?
Don’t Overspend
One of the most obvious ways to reduce your burn rate would be to keep a close eye on how much you’re spending. Only invest your cash in items that are going to provide a good return on investment (ROI).
As a new business, it’s likely you’re going to need to purchase equipment that is going to take a significant chunk of your business’ budget, however, you could cut back on some of these expenses by purchasing second-hand equipment. For example, all businesses need a selection of computers to work from, so why not invest in a refurbished MacBook instead of one that you’ve bought brand new? MacBook Pros, in particular, are Apple’s most premium range, offering the best visual displays on the market (e.g the Retina screens) in a handy compact size, meaning you can work on-the-go but they are also some of the most expensive laptops you can buy. A second-hand Macbook Pro laptop, on the other hand, will offer the same quality at a reduced cost which may be the first step to a greater ROI. Other office equipment you can get second-hand includes office furniture as everything from chairs and tables to desks and filing cabinets. You can even get office appliances (such as printers) and stationery as used or second-hand if you know where to look.
Choose Your Workspace Wisely
Upon starting out, businesses often get too ahead of themselves and rent a space that is far too large, meaning they are overspending beyond what is necessary and are already causing a significant burn rate. Not only will you have to pay for the rent on the office but you may also have to pay for energy bills such as heating and telecommunications (phone and Internet). Heating a large office can be very expensive, especially in the winter months and if you conduct a lot of business online or over the phone (as many businesses do), you’ll have to fork out for those better connections.
As a new start-up company, why not share office space with other start-ups? It wouldn’t have to be a forever option but it would be ideal for getting off the ground in the initial stages. There are coworking spaces all over the place, but especially in major city hubs where rent would otherwise be very expensive. Not only will coworking this save you cash, but you’ll also be able to meet other like-minded individuals who may be willing to share knowledge to aid your progress. Often, these sorts of spaces are equipped with entertainment facilities too. This may include pool tables, televisions and even social areas such as cafes and restaurants meaning that your employees will be able to unwind and relax on their breaks, making them more productive.
Focus On Cost-Effective Marketing
A big mistake that new start-ups make is investing a large sum of cash into marketing platforms they have little clue about. Marketing is an important aspect of making your startup a success; no one knows that your company exists yet and so you’ll have to put the effort into getting your name out there. But there is a right and wrong way to go about marketing your startup, especially if you’re trying to save money.
Although you may have a set budget for marketing, why not try more cost-effective marketing channels initially and see how far you can progress? Some channels include search engine optimization where the useful and helpful content that you’ve created will draw organic visits (via Google, Bing etc.) to your business without having to pay extra for it. You can also use social media profiles to bring prospective customers to your website, by sharing interesting, funny and relevant content that shows off your personality and the care you have for your clients. Once you’ve gained a solid following, customers are likely to share your website organically on their own platforms, which will build your following without having to invest large sums of cash.
I hope you enjoyed this blog post about how to reduce your startup burn rate and save your cash flow.
Interested in more articles about lean start money management?
Read Related Resources:
• Tips To Limit Your Startup Expenses
• How To Tackle Your Initial Startup Financial Needs
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