Tips For Avoiding Cash Burnout

Many small business owners are not prioritising strategies to avoid cash burnout and extend their cash runway instead they are constantly on the lookout for how to raise capital to finance their business.

This has led many small businesses to their early graves and yet majority of business owners have not learnt their lesson.

What are you doing on a daily basis to avoid cash burnout or simply running out of cash? It is important that you have strategies built into your business structure to help you avoid running out cash instead of waiting till it is too late to act.

When you’ve just raised money or have enough money in the bank it is often difficult to be conscious of running out of cash and losing your business, which is why that consciousness must be established well before you think you have raised too much to run out.

In this article we share three (3) ways to avoid cash burnout and how tips on how to extend your cash runway:

3 Ways To Avoid Cash Burnout In Your Small Business

1. Build With A Budget

Yes I know this seems all too familiar but it true. Running your business operations with a budget is essential to avoiding running out of cash. One reason for this is that it helps you keep an eye on your day to day business spending and ensure that your expenses are within the limits you’ve set. But just building a budget is not enough everyone involved in your team has to be aware of that budget too not just your accountants. More than that, they need to be involved in the budgetary process from the preparation to the execution. This way your budget is more likely to be effective, your employees more accountable because you have the buy-in of your employees. Employees would be able to independently identify expenses in their departments that are not in line with the budget and quickly curtail it as against you or your accountants trying to fish out those expenses yourselves.

2. Build A Cash Reserve

A cash reserve is that cash that is set aside to cover expenses or emergencies that are unexpected. A cash reserve is especially important in the situation where your business runs out of money, it helps you make the payments necessary to keep your business afloat in the short run while you work to resolve your cash issues. To build your cash flow you have to incorporate setting aside small chucks of money in to the cost structure of your business right from the get go.

3. Diversify Your Revenue

No matter the technique or strategies you use, you would never be able to sufficiently avoid running out of cash if you are not bringing more money into your business. The best way to ensure that cash keeps coming into your business is by building a sustainable revenue structure into your business model. This will reduce the risks of your business running out of cash you would not depend on a single income stream.

Tips On How To Extend Your Business Cash Runway

The cash runway of a business refers to the length of time in which a company will be able to fund its operations without raising any more money. Cash runway shows you how long your business can operate at a loss before running out of money. It is a particularly useful metric for startups to track.

In other words, it determines how long your business can last with the amount of cash it has available before running out of money. This is calculated as total cash divided by burn rate (how quickly a company is spending its money).

Say you’ve calculated the runway of your business and find that you have only three months left, what do you do to get more time? How do you extend your cash runway?

Below we share a few tips that may help:

1. Implement Low-Cost Sales Strategies

When you have a short cash runway, you are extremely conscious of the amount of money that the business spends and try as much as possible to curtail it, right? But that is not enough. 

Business owners must execute low-cost sales strategies like selling added services/products to already existing customers or leveraging existing capabilities to capture a new market. You need cash inflow and you need to save as much cost as possible – low-cost sales strategy is another option for extending your cash runway.

2. Effectively Manage your Receivables

As you monitor your cash flow and seek more ways to get money into your business, take a look at your receivables (that is the amount your business is owed) and try to reduce the amount that is outside your business purse. 

Of course, a few helpful strategies to do this is to implement an incentive system that rewards customers who pay their debts early and punish those who fail to make on-time, also make sure your debtors are clear on the terms of payment so there is no confusion.

Implementing these tips would prove helpful in extending your cash flow but the best strategy is to monitor and manage your cash flow effectively and implement most of these strategies even before your cash runway becomes threatening.

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