7 Ways to Reduce Cash Burn Rate for Your Startup
Updated: Apr 7
Running a startup can be hard. You’re in charge of everything from product development to marketing, and there’s no one to bail you out if things go south. If your business model doesn’t work or you get hit with unforeseen expenses, you might often not have anyone who will offer you advice on how to navigate the rough waters. As a result, many startups find themselves running out of cash before they can generate revenue, which can be an expensive mistake. But by following these tips below on how to reduce the cash burn rate for your startup—even if it means cutting expenses like office costs or delaying hiring—you can keep yourself afloat until it starts making money!
1. Create a budget
To help control your cash burn rate, you need to create a budget. A budget is simply an estimate of what your expenses will be over a given period of time, such as one month or one quarter.
Budgets can be created based on actual data from previous months or years (if you have enough historical data). Or they can be estimates based on industry averages and other factors like projected growth rates for the company and expected increases in expenses due to expansion plans or new hires. If you don't have any historical data available, then use industry averages as a starting point for creating your first budget.
Once created, review the budget regularly so that it remains up-to-date with all changes that affect expenses such as new hires or equipment purchases; if something comes up unexpectedly, then adjust accordingly before too much money has been spent unnecessarily.
2. Focus on revenue generation
When it comes to cash burn rate, focus on revenue generation before you focus on expenses. You can always cut costs later, but if you don't have the money coming in to cover those costs, then cutting them won't help your business survive.
The first step is figuring out how many customers you need to bring in each month in order to break even. The second step is finding ways for those customers to buy more often (or at higher prices). The third step is figuring out where else in the customer journey there are opportunities for upsells or cross-sells - that is, other products or services that would complement what they're already buying from you and make them happy with their purchase decision even more than before!
3. Outsource non-core activities
Outsourcing non-core activities can be a great way to reduce costs and free up time for your team. You can focus on what you do best, while someone else takes care of the rest. This is especially important when you're bootstrapping a business because it's often difficult to find the resources necessary to handle all the different tasks at once. While outsourcing isn't always necessary--and sometimes it's even counterproductive--it's definitely worth considering if there are certain things that don't align with your core competencies or growth strategy.
4. Negotiate with suppliers
If you're buying in bulk, ask for a discount. If you're ordering small quantities, ask for flexible payment terms. If it's not too much trouble, ask for free samples of the product before committing to buying it. If they agree to all these things and more - and they probably will if they want your business - then congratulations! You've just negotiated some savings on top of whatever other cost-cutting measures you have implemented at this point in time.
5. Minimize office expenses
Office expenses can add up quickly, especially if you're renting space in a prime location. Consider downsizing your office space, switching to remote work, or subleasing unused space to reduce your rent and utilities expenses.
6. Prioritize efficiency
Focus on efficiency, not cost-cutting. When you're trying to get your startup off the ground, it's easy to fall into the mindset of simply cutting costs as much as possible. But this can end up costing you more than it saves if it leads to lower productivity or morale among employees. Instead of just slashing expenses indiscriminately, focus on improving the efficiency of all aspects of your business - from customer service to software development and beyond - to achieve better results with less money spent.
What do we mean by "efficiency"? In general terms, efficiency refers to how much output can be produced with a given amount of input (e.g., time). However, there are many different kinds of efficiencies in business: material and energy use; labor productivity; waste reduction; value creation per dollar spent, etc. The key here is understanding which measures matter most for your industry/company so that when making decisions about costs vs investments, they reflect these priorities rather than some arbitrary goal like "cutting costs by 10%."
7. Delay hiring
The best way to reduce your cash burn rate is by hiring slowly. This may seem counterintuitive, but it's true: you should hire more slowly than you need to. Hiring too quickly can lead to overstaffing and wasted resources in the long run, especially if one or more of your new hires isn't a good fit for the company culture.
The key here is hiring when it makes sense for getting work done--not just because there's an open position somewhere on the team and it needs filling fast! If there's no immediate need for another person on staff, wait until there is before adding someone new into the mix--and even then, make sure that person really fits with what everyone else does at your business so they don't end up being underutilized or redundant after all the time spent interviewing them!
Reducing your cash burn rate is crucial for the success of your startup. By following these tips, you can reduce your expenses and improve your bottom line. Remember, every dollar counts when you're starting a new business, so be mindful of your spending and always look for ways to optimize your resources.
Are you an overwhelmed entrepreneur who needs help building your business? Enroll in the Blaze Business Intensive course for entrepreneurs today!