You are working hard on your genius business idea. Maybe you had a break this summer, maybe you got to ponder on progress.
Is It Time to Pause?
Any strategy for early stage companies to develop the right approach, engage the right team and reward mechanism, to build the right relationships and customers takes time. You are in a LONG game but pausing allows to review progress.
Answer a few questions to help you picture and visualize how your business is progressing.
What problem are you solving?
For whom? Are you nailing your target market?
What are your expected expenses and revenues?
How quickly are you going through your cash reserves?
Basic Forecast & Budget
This is the time of year where teams start and hope to wrap up their annual budgets and yearly deadlines. So, you must begin to think about forecasts and scenarios for 2025.
Start by analyzing your company's past financial performance (if any) to gain insights into revenue patterns, cost trends, and areas that require improvement. Review financial statements, to identify any significant fluctuations or areas of concern.
If you are just starting your venture, this is the time to focus on realistic estimates for the year to come.
Utilize forecasting techniques, such as trend analysis or judgement, to project future revenue. Be conservative in your estimates to avoid overestimating revenue and setting unrealistic expectations. Carefully estimate your business expenses for the up coming year.
How to Calculate Cash Burn-out Rate
Calculating the cash burn-out rate is actually pretty simple!
The burn-out rate is the actual amount of cash your account has decreased by in a given period. For mature companies, it describes a company’s negative cash flow as filed in the Statement of Cash Flow and financial statements.
In simple terms, the cash burn-out rate represents the speed at which a company consumes its cash reserves, hence how quickly it will "burn" its' cash.
Cash Burn Rate = Cash balance in prior period – Cash balance in current period
What Does It Mean if Your Burn Rate Is Negative or Zero?
If your burn rate is zero, it indicates that you are earning and spending an equal amount of money. But once a Company is earning more than it is spending, the burn rate becomes meaningless. As a metric, it’s only helpful for startups that still have higher expenses than revenue.
Normally, the calculation above results in a number equal to or above zero. But there are situations in which the burn rate may come back as negative, particularly for early stage companies. That means that you are earning more money than you are spending.
Say you just received a round of funding — your burn rate might show negative because you appear to be gaining money.
If you haven’t added any investor funding, it could indicate that your revenues are greater than your expenses.
Going back to answering one of the earlier questions, what are your expected expenses and revenues next year? with this foresight, focus on your cash burn out rate and decide if you need to change direction or strategy.
If you are just getting started or at the idea stage, check out our Validation Template for FREE.
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Also, don't forget, we are growing! We still have a couple of open positions. Please apply to our open positions, no matter who you are and what you believe in. We are in a long term game and thinking of the people that will be surrounding us in the next year, in 3 years, in 5 years.
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Upcoming Event: Basic Forecasting & Budgeting
We’re excited to announce the upcoming Founder Round Table & Speed Networking Webinar. This event focuses on improving your basic knowledge as an entrepreneur, with a focus on investor readiness. Join us to connect with like-minded entrepreneurs and gain valuable insights
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