Managing Burn Rate for Startups

Managing burn rate for startups. A startup CEO must manage how the startup spends money and how it receives revenue. Here are the factors to manage.

Managing Burn Rate for Startups

  • Sales funnel
    Understand your sales funnel and how it produces revenue. A product similar to BrightFunnel www.brightfunnel.com/  may be useful
  • Pricing
    Your pricing policy should not include free trials after your first five customers are closed. Please see John Gale’s post Pricing for hitech startups
  • Purchase orders
    Receive them electronically – do not accept new ones when a past invoice is unpaid
  • Invoices
    Please consider the following alternatives:

    • Invoice to receive payment prior to delivering your product to the customer. You may have to give a discount to achieve this
    • Invoice at time of shipment and indicate terms – try to be paid on receipt or to be paid in 15 days (Net 15)
    • For those situations where customers will snail mail checks – understand bank lock boxes
    • Factoring – Please see John Gale’s post Invoice Factoring – a way to generate cash flow
    • Invoice eventually to be paid whenever – NEVER do this
    • Charge late fees of 2% per month
  • Expense Reports
    Abacus fixes expense reports. When a company starts using Abacus, they link their bank account. Employees set themselves up in the app and also link their bank account. Employees then submit expenses via taking pictures of the receipts, uploading PDFs or forwarding emails. Managers approve, right away if they want, and the money is reimbursed to the employee the next day. Once the money clears, Abacus automatically syncs transaction information with the company’s accounting software. No more filling out reports. Abacus does that for the company automatically.
  • Deposits
    Deposit checks immediately (before daily cut-off times – do not deposit by ATM or by a means where you receive no real receipt – ask your bank for availability of funds in 0-2 days instead of the standard 1-5 days – MICR encode deposited checks when practical
  • Inventory
    • You need to manage both work-in-process inventory and finished-goods inventory carefully. For purchased or drop-shipped items determine competitive pricing and lead times.
    • Request continuity (discount) price bids for ongoing repeat purchase items
  • Monitor Burn Rate
    • This includes tracking customer relationships to be sure invoices are sent out in a timely manner and tracking invoices
    • Monitor credit extended to customers where you have checked D&B ratings
    • Use a collection service when appropriate
    • If you have a large volume of payments and deposits ask your bank for an analysis of your optimal balance amount
  • Office of the CFO
    Most hitech startups do not need a CFO during the first year or two. But talking with a startup experienced CFO about financial strategy every few months is a good idea. He/she will make sure that you have a budget and keep financial records
    Please see John Gale’s post Why Record Keeping Is Important for Startups

References

 

 

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