Your Burn Rate Is Too High

As Q4 begins, every founder and finance leader should be asking one question: “How long can we keep operating at our current pace before we run out of cash?” That’s where understanding your burn rate and cash runway becomes mission-critical. An entrepreneur recently asked me about burn rate after reading about it in a LinkedIn post and asked if I’d do a short one on that…so here you go!

Burn rate refers to how much money your company spends each month. There are two ways to look at it. Gross burn rate is your total monthly operating expenses like salaries, tools, rent, etc. It tells you how expensive your company is to run. For example, if you spend $250,000 each month across payroll and overhead, that’s your gross burn.

Net burn rate, on the other hand, subtracts your monthly revenue from your expenses to show how much cash you're actually losing. So if you bring in $100,000 in revenue but spend $250,000, your net burn rate is $150,000/month.

With your net burn rate calculated, you can figure out your runway which is the number of months you have before you’re out of cash. Very important to Start Ups/Founders! The formula is simple: Cash on Hand ÷ Net Burn Rate = Runway (in months). So if you’ve got $900,000 in the bank and burn $150,000/month, you’ve got exactly 6 months of runway. Tick tock!

This becomes incredibly important in Q4 for several reasons. First, fundraising often slows down at the end of the year. Second, holiday slowdowns can hit your revenue or collections, even if your spending continues. We’ll be hitting on AR/Collections VERY hard coming up to help you out…Finally, Q4 is often when companies ramp up hiring or expenses to hit year-end goals, which can spike your burn unexpectedly.

If you're feeling pressure, here are some key levers to reduce burn or extend runway without sacrificing growth:

• Forecast weekly cash flows (monthly is too slow).

• Prioritize high-ROI projects and pause non-essential ones.

• Renegotiate vendor contracts or extend payment terms.

• Tighten up AR collections to bring in cash faster.

• Reassess hiring plans and delay new roles if needed.

• Explore bridge financing or revenue-based funding options if necessary.

Make Your Ascent With Confidence

For those looking to climb to the top, only the best will do. Peak Bank’s high-yield savings account delivers exactly what savvy savers need, helping you go higher than ever before. Earn up to 4.35% APY* today when you join Peak Bank.

Apply Online Today

_{Member FDIC}

At the same time, avoid common mistakes like overestimating Q4 revenue, assuming January will magically fix everything, or making deep cuts that damage growth potential. I’m sure you’ve seen some super aggressive EBITDA goals to meet set out by leadership that we all know won’t come to fruition…Burn rate management is about operational discipline, not panic.

Want a free Google Sheet template to calculate your burn rate and runway? Just reply with “Burn Calculator” and I’ll send it your way.

Sponsoring the Cash Flow Chronicles today is MORNING BREW!!!

Thank you for supporting our newsletter. Each time a reader engages with our sponsor’s ad, this directly supports CFC’s mission to be the TOP FINANCIAL newsletter Beehiiv has to offer.

Even if you do not buy a product, subscribe, etc. this greatly supports our mission. Take 5 seconds today and check them out!

Trusted by millions. Actually enjoyed by them too.

Most business news feels like homework. Morning Brew feels like a cheat sheet. Quick hits on business, tech, and finance—sharp enough to make sense, snappy enough to make you smile.

Try the newsletter for free and see why it’s the go-to for over 4 million professionals every morning.

Check it out

I have a high focus helping other vets out there and want you all to succeed, so I created this Skool group below called the Profit Platoon. Would love to have you there!

Contact me if you’d like to network or partner together. I’d love to chat with you more about the services I offer on the side through Guernsey Consulting. If you do not know, I work full time in Treasury Management and do consulting on the side. Would love to chat or network with you about it.

Some of those services are listed below that we can help you with!