New and mature companies often focus on growth. Without proper planning this could lead companies to burn through cash quickly. As a result, cash burn can constrain future growth due to having to stop short on spending and being forced to accept more expensive financing. The following are several ways to avoid and manage cash burn:
Stick to Your Core Competencies. To lower costs, non-core functions should be outsourced so that the company can focus time and cash at the best place possible.
Share the Wealth. A growing company should consider to pay partners and vendors partially in equity or royalty payments rather than cash. Profit-sharing and equity payments save cash and give employees an incentive to help the company succeed.
Don't Have Tunnel Vision. Many company focus too much on profit without considering cash flow. A firm should give as much weight to cash management as to profits keeping in mind that there is a finite pool of cash and a company should have a good expectation of how much will be spent and what sales will be.
Cut Costs. If a company is close to running out of cash, it should manage its expenses, for example by re-evaluating current expenses.
Renegotiate Early. If a company is required to obtain additional financing, this should be done as far in advance as possible to not lose leverage with lenders. When cash is needed immediately, financing will be obtained at a higher costs because the company is desperate. Going to investors in advance provides more enticement for investors and the company does not appear as desperate.
Managing cash is highly important to any business and often there are several ways a company could spend less cash or focus it better. If you have any concerns about your company's cash flow, please give us a call for more personalized advice.
/posted by Andrea Paezold