Business, Finance, Scale-up advice

Three tools to help scale-ups manage burn rate

25 January 2023   |   14 minutes read
Burn rate

For high-growth businesses, knowing how to manage burn rate is essential. With the right digital tools, you can have complete control and visibility of your cash flow and employee spending, reduce your Days Sales Outstanding (DSO), and forecast more accurately.

In this article, we’ll look at three kinds of software that can help you extend your cash runway while you scale. Here’s what we’ll cover:

What is cash burn rate and how is it calculated?

Burn rate, or the rate at which a company spends its initial capital, is a sensitive topic in the scale-up community because of how difficult it is to manage.

As a measure of negative cash flow, scale-ups and investors use it to track monthly the amount of cash that a company spends before generating its own income.

It’s also a way to find out how much time the company has before it runs out of money – its runway, which is calculated by dividing what’s in the bank by what is spent each month.

If you have £1,000,000 and you’re spending £100,000 each month, your runway is the result of that division (10 months), so your burn rate is £100,000.

Burning cash too fast can result in a company going out of business – generating profit from sales or revenue may take years, and staying afloat will depend on the amount of cash available to cover expenses.

On the other hand, burning cash too slowly can be a sign that the company isn’t focused on investing in its future, which might make it fall behind the competition.

For these reasons, investors make a point to monitor a company’s available cash, expenditures and cash flow burn rate before deciding to invest.

Showing investors that you know how to manage cash and burn rate gives them the confidence and trust to back the business – but what worked in the past won’t necessarily work now.

What are the best strategies modern for managing burn rate?

Traditional advice given to companies looking to reduce their cash burn rate included taking drastic measures, such as:

  • Lay-offs and employee pay cuts, while also holding off on hiring
  • Selling company assets, such as vehicles or office equipment
  • Increasing sources of income
  • Issuing debt or equity

The problem is that most of these measures are undesirable under normal circumstances, and typically come off as desperate attempts to earn more time – rather than set up companies for future growth.

They may, in fact, get in the way of growth.

Instead of making hasty decisions as a reaction to cash movement, it’s better to be proactive and develop a strategy geared towards cost control, raising income, and maintaining a positive cash flow.

But you and your team don’t have to carry the full weight of this on your shoulders anymore.

Modern financial technology can help you get more done, for less money, and more quickly. There are plenty of useful and accessible services out there ready to make everyone’s life easier and have the results to show for it.

We put together a small list of digital tools for monitoring, analysing and controlling cash burn rate, and why they’re the extra push high-growth companies need.

All three are loved by their customers and highly rated on software review site G2. Their seamless integrations with top accounting and ERP software also make their implementation a breeze.

Three digital tools to help you extend your cash runway

1. Gaviti

Gaviti is a software designed to help users get paid accurately and on time. Its comprehensive arsenal of features help you and your team stay on top of receivables, track open invoices and set payment reminders for their clients. Gaviti is particularly popular among scale-ups working in wholesale and distribution, manufacturing, transportation and logistics, business services and technology.

This platform simplifies the entire collections process and comes with benefits that have a direct impact on burn-rate management, including:

  • Accelerating cash flow
  • Reducing DSO by 30%
  • Ensuring users get paid faster without wasting time, resources and energy chasing clients or carrying out manual processes

On top of this, Gaviti’s intuitive dashboard shows an overview of your company’s accounts receivables (AR) and automatically sends you a summary of them via email so you’re always on top of any changes.

For busy finance teams, the visibility that Gaviti offers into AR – which can be detailed and focused on specific customers – and the timely reminders can be invaluable.

Reducing DSO during a difficult period, especially as we continue to navigate through a recession and cost of living crisis, gives you the leeway to invest and spend when you need to, and not a moment too late.

Integrations: Gaviti supports all Enterprise Resource Planning (ERP) systems (e.g. SAP, QuickBooks, Priority ERP, NetSuite), including custom accounting or ERP software.

What users love about Gaviti:

‘I no longer have to spend hours per week crunching the numbers to see where my cash is. Reports are there, waiting for me in Gaviti. For the most part, I don’t even think about collections. It just happens.’ – Krista Lewis, Director of Finance and Accounting, Vernovis

2. Soldo

Knowing when and what to spend on isn’t always clear for finance leaders in rapidly growing businesses.

For scale-ups looking to raise funds, budgeting in advance is a way to avoid the burn rate panic that brings on knee-jerk measures – but they also need the flexibility and freedom to adjust spending controls.

Soldo combines prepaid company cards with a flexible spend and expense management platform. You can assign cards to all employees, who will use them for expenses and company spending once you top up the amount you want to allocate.

Unlike credit or debit cards, Soldo comes with a range of features to help you track spending – such as full reports and instant notifications – and define spend limits as you see fit, with only a few clicks.

These controls, along with the rich insights Soldo offers, help high-growth companies manage burn rate by:

Soldo also makes receipt capturing and sharing transaction information a cinch – employees can upload receipts at the point of purchase and send them via the mobile app. After that, sharing receipts with your accounting system takes one click.

The control and insight you get into how you’re spending helps you to identify overspending, cost-cutting opportunities, and learn where to spend and not to spend – tackling burn rate and boosting investors’ confidence.

Integrations: You can connect Soldo with Sage, Xero, QuickBooks and NetSuite to eliminate expense claims, manual receipt processing, and payment claims. Integrating Soldo with your accounting software gives you and your team a complete, real-time overview of company spending, as expense data is automatically shared daily.

What users love about Soldo:

‘One of the struggles we’re having is to put in controls at the same time that the business is growing. Soldo lets us do that by helping us get a grip on exactly where we are with spend.’ – Jamie Clark, Senior Financial Accountant, Farmdrop

Book a demo to find out more about Soldo or get started now by choosing the right plan for your business.

3. Float

If you really want to stay on top of your cash flow, get Float.

This cash flow forecasting app helps companies project their cash in the bank and gives them a real-time view of cash flow.

Float’s forecasting, budgeting,and reporting features help you unlock actionable insights and make better decisions to bring your team closer to big goals.

Burn-rate management is a big part of Float’s purpose, which the platform supports by:

  • Planning and analysing runway, burn rate and churn
  • Offering future cash flow projections
  • Providing a daily, weekly, or monthly view of cash flow
  • Breaking down invoices and bills for granular detail of income and outgoings
  • Gathering live data from accounting systems automatically and creating an ongoing, rolling, accurate forecast

After some serious investment in growth, businesses tend to cut back costs, become conservative, or make hasty decisions. Float helps you decide which bills to pay and which to delay, tells you how much you can afford to spend on specific areas of the business, and helps you plan for the ‘what-ifs’.

It shows you exactly what you need to pay attention to the most while your business is growing.

Integrations: Float integrates with QuickBooks, FreeAgent and Xero and pulls real-time data directly from them so you don’t have to create any more spreadsheet-based forecasts. This saves teams significant time and prevents manual errors, taking the guesswork out of managing cash.

What customers love about Float:

‘Float is fluid and flexible, which is amazing. I really value it. I can see everything I need to immediately, and in that way it gives me so much confidence in where we are as a business.’ – Jacob Hill, Managing Director, Offplay

Go digital and keep moving forward

These exceptional tools won’t just suit your business during periods of rapid growth – their high scalability means they’ll grow with the business and remain useful long after burn rate drops off your list of concerns.

They’ll save you time and money in the long run, provide valuable financial insight and ensure the company’s cash flow stays healthy.

It’s full steam ahead from now on.

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