Are You Managing Cash Burn? It's Not Easy.

Thomas Taylor - Tuesday, October 04, 2016

Managing cash burn can be stressful. Like many of the issues facing your business, it relies on your ability to try to predict the future.

There will be two main reasons for variations to your plan: an increase in expected costs or a reduction in expected income, and they often go hand in hand. A blowout in development time can push back the start of sales. It's true that costs are usually easier to estimate but a lot of startup costs are based on people's time. Add weeks to your development hours and your costs can escalate very quickly.

There are two clear types of costs: development costs and operational costs and it's vital that you keep them separate. That can mean using arbitraryestimates to divide some costs, like staff time. You need to be able to work out how much cash flow is coming in from operations and when that will cover development costs (break-even party time).

Variations in income fall into two groups, timing differences and permanentdifferences, but once your machine is turned on its hard to tell what factors are at play because there can be so many. Nevertheless, you need to try,

There is obviously a lot of risk in new ventures, so what steps can you take to minimise that risk? The most important thing is to constantly measure and compare the results to your plan, change the plan, then take action quickly. Business plans should constantly evolve - they are not in any way like old fashioned budgets used primarily to attempt to control employees.

Sometimes a good strategy is to take risks with smaller stakes until you can be more confident of the results. Think if it as the same thing marketers do by sending small A/B testing email campaigns before they send to the larger list.

There will always be risk in business, indeed in life, but knowledge is definitely the powerful tool you have to try to manage risk. Make sure your plan is as good as it can be and, even more importantly, that it evolves quickly as the business moves through launch and towards breakeven.


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