Let us first try to comprehend what business Burn rate actually means and later we will help you with some tips as how to keep it in control before you run out of your treasure
Gross burn vs. Net burn
Burn rates for valuations
Tips to keep your burn rate in control
- Keep the sales graph growing – Higher the sales growth than the burn rate, safer the business and greater the chances of gaining investment.
- Control expenses – At this stage, controlling expenses is both wise and critical step to take. It can drastically bring down the burn rate. This includes watching electricity consumption, wise use of stationery, reducing unproductive staff, etc.
- Unit economies – “Startups need to ramp up fast to reduce the fixed cost per unit. The faster the business grows, the quicker per unit fixed cost falls.”
- High creditors, less debtors – Try to manage the cash by keeping it with you as long as you can but not at the cost of upsetting the creditors. Delaying the payments while ensuring timely receivables in cash can help you keep away from running out of the cash instantly.
- Reduce inventory days – Reducing the inventory days to least can help you reduce some cost.