How Real-Time Insights Reduce Your Company’s Burn Rate

You’ve probably heard the expression: “You need to spend money to make money.” And while we don’t recommend getting your financial advice from ancient Roman playwrights, the phrase does have some truth to it. Operating and growing a business requires capital. But spending more than you’re bringing in will run a company into the ground quickly. 

Business owners need to balance the rate at which they are spending money — a.k.a. their burn rate — with the revenue and investments coming in. That’s easier said than done, so let’s go over how to calculate a company’s burn rate, why it’s so important, and how to keep your burn rate at a manageable level.

What Is Burn Rate?

Burn rate describes the rate at which that company is spending money and how long they can continue to burn cash before needing to turn a profit.

Before you can determine a company’s burn rate, you need to calculate the monthly negative cash flow or gross burn. 

For example, if a company spends $50,000 per month but is generating $20,000 per month in revenue, their monthly gross burn would be $30,000 per month.

The burn rate can then be calculated by figuring out how many months the business can continue operations before needing to turn a profit (or running out of cash).

If you continue to burn $30,000 per month and have $180,000 cash on-hand, you only have six months of runway before running out of cash.

What Is Considered a “Good” Burn Rate?

It is generally advised that businesses have at least 12 months of runway available to them at any given moment.

That way, in the event of economic downturns, supply chain issues, technical difficulties or emergency expenses, your business has enough cash on-hand to handle these challenges and continue operations.

So, for example, if your company is burning $10,000 a month, you should always have a cash runway of $120,000.

Why Reducing Burn Rate Is So Important

82% of small businesses fail because of cash flow problems, making them the single most common reason for a company’s downfall.

If you’re unable to meet unforeseen financial circumstances with enough cash to continue operating, chances are your business will fold quickly.

Ways to Reduce Your Company’s Burn Rate

Now that we know that lowering a burn rate is crucial to the success of a business, the good news is that there are an array of strategies you can implement to reduce burn rate.

Audit Company Spending

The first step in reducing your burn rate is to know exactly how much money your company is spending and what it’s being spent on. Whether conducted internally or by a third party, an audit will uncover all corporate payment methods and expenses — from recurring charges like rent and subscriptions to one-time costs like new computers or an office holiday party.

Only once you’ve compiled a full picture of corporate spending can you begin to determine where cuts can be made.

Reduce SaaS Spend

Once you’ve calculated your total spend with an audit, you may be surprised to learn how much you’re spending on SaaS subscriptions. SaaS spend is an easy area to cut back. Start by ensuring you don’t have duplicate subscriptions, unused pay-per-employee licenses, or zombie accounts for employees who no longer work at the company but still have accounts with software providers.

Identifying and eliminating these redundant SaaS subscriptions will reduce your burn rate by cutting back on your business expenses every month.

Shut Down Unprofitable Projects

If you need to reduce your burn rate quickly, it’s probably not the time to start branching out in new directions. Likewise, projects that were started when there was more cash in the bank that aren’t producing results may need to be put on hold or shut down entirely.

This will prevent your company from losing cash to unnecessary and unprofitable projects (and all the costs that come with them).

Increase Revenue

Of course, another approach to reducing burn rate is to bring in more cash to offset spending. Some strategies for this may include raising the price of products or subscriptions, upselling existing customers, bringing in new customers, or offering promotions to up the volume of paying customers.

Keep in mind that you don’t want to undertake any strategies that are too costly — hiking up your own costs will negate the whole point of increasing revenue.

Drive Growth

Obviously, many costs and expenses will continue to be incurred even as you try to reduce your burn rate. So, it’s in your company’s best interest to focus on spending money that drives growth. That could mean shelling out some cash up front to hire a freelancer or consultant that can implement quick, high-return changes or it could mean focusing advertising spend on fewer channels that get better traction.

How Mesh Can Help You Slash Your Burn Rate

Reducing your company’s burn rate can seem daunting, especially knowing how crucial it can be to the success of your business. But don’t worry — Mesh makes it easy to slash your burn rate. 

Real-time insights and full visibility allow you to monitor your company’s spend at all times, and ensure that no one is making purchases outside the budget and spend policy. Virtual cards provide total control over employee spending, allowing you to limit how much can be spent, which vendors cards can be used for, and how long cards are active.

Using virtual cards to pay for recurring expenses like SaaS subscriptions also allows Mesh to notify you as soon as an unusual or duplicate charge occurs. Mesh will even provide cheaper alternatives to the software you currently use to help you cut down your SaaS spend.

Furthermore, Mesh saves you time when it comes to spend-related tasks like expense reports, receipt collection and monthly close by automating tedious manual work — so you can reallocate that saved time and effort to driving growth.

To learn more about how Mesh can help your company reduce its burn rate and make the most of your spend, book a demo today.

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