10 Easy Ways to Extend Runway & Reduce Burn

All businesses have one thing in common - they need cash to survive. Improving cash flow comes down to two things. Extending runway and reducing burn.

‘Runway’ is how many weeks, months, or years a company can continue operating without an influx of cash - either by investors or debt. It encompasses all cash payments going out to pay bills, payroll, etc and all cash coming in from customers and other sources.

‘Burn’ is how much cash the company ‘burns’ through each week. So, as you can see, they are directly related. Reduce your burn (spend less) and you increase your runway. Increase burn (spend more) and your runway shrinks.

It’s very important to keep track of your burn and runway (typically done on a weekly or monthly Cash Forecast) so you don’t suddenly find out there is not enough money in the bank to process payroll.?

Here are a few basic hacks for reducing burn and extending runway:

1. Watch those payment terms. Before you perform any work for a customer, you undoubtedly came to some type of agreement. Make sure it’s in writing and make sure your CFO reviews the payment terms (well, ideally the whole agreement). Thirty days, max! Don’t let those big companies use your money to finance their objectives - push back on long payment terms and get as much as you can upfront.
2. Collect! You would be surprised to find out how many companies send out invoices and do not follow up. If your customer has not paid their invoice by the due date, reach out! And reach out consistently until payment is received. The first reachout should be a friendly reminder followed by increasingly pointed communication until payment is received.
3. Cut unused sub seats. Does this happen at your company?? Someone signs up for a SaaS subscription with a bunch of seats, puts it on their company credit card, and whether it’s ever used or not, the company pays and pays. The originator of the subscription may have left the company and the service may not even be used anymore. Or, perhaps only one person is using it but you’re paying for 20 seats. Make sure you have a process for reviewing subscriptions every time they hit a company credit card.
4. Speaking of Credit Cards… STOP giving them to everyone at the company. The more employees who have credit cards, the greater drain it is on the finance team and the less likely the charges are being adequately reviewed, coded, and reported correctly on the financials. Employees can submit expense reports for a few things here and there, and you can bet they will provide all the detail and the charge will be correct and timely because they want their reimbursement.
5. Stretch your payables. There is no need to pay an invoice the moment it is received. Consider the payment terms. Most are net 30 (make sure you require that when you’re reviewing the vendor agreement) which means you have 30 days to pay it. No need to pay it on day one, although your vendors will love you for it - I know I do as a vendor! (Note: I recommend invoices from freelancers are paid as soon as possible since these are real people living on that money.)
6. Renegotiate and cut unneeded functionality and/or services. How many times has a company contracted for a service they later found was unneeded? Technology is constantly changing and business models evolve. Take a look at the services you’re paying for: Are you using them anymore? Are you using all the functionality? Compare new offerings from the provider. Maybe you can go down a tier or purchase what you need a la carte. You’ll never know if you don’t look.
7. Please stop putting everything on autopay. Oh, I know how tempting it is to just put it on autopay so you never have to worry about missing a payment. But, down the road, when that payment increases by 500% and you didn’t notice, it’s no longer worth the convenience. Be sure to review and approve all invoices and charges.
8. Hold your managers accountable. Managers need to be aware and accountable for what’s being spent by their team. They should be reviewing their team’s expenses (including credit card charges and subscriptions) and ensuring the proper information is provided to the accounting team in a timely way.?
9. Communicate with accounting. You’d be surprised how much more receptive your accounting team will be when they are informed about a difficult transaction, customer, vendor, etc. prior to it happening rather than after. Have weekly or periodic calls with your finance team to review common problems like customers who haven’t paid their invoices, customer renewals, new customers coming onboard, new revenue streams, or changes in subscription or revenue models. And, include your Head of Finance in senior management meetings to represent the finance point of view
10. Do you have the right person in each role? No one wants to let people go. It’s difficult and it’s sad. But if you have a person who is not performing, it is not only misusing the company’s precious cash, it is also most likely bringing down the morale of the rest of the team - and, for that matter, it’s not great for the morale of the non-performer either. They might be a huge asset in a different role or with a different company.

When you’re in a position where cash is tight and extending your runway is critical, these are the 10 places I recommend any company start looking. (Tbh, all companies should be doing this!) These are far easier than making major structural changes or going back for another round of investment.

#finance #accounting #fractionalcfo