This episode is all about how to manage company financials both strategically and tactically. Founders should stay closely involved with financials throughout the life of the business. In the early stage, this means paying all of the bills and reading the credit card statements. Knowing where money is going is the key to keeping burn low!
https://www.youtube.com/watch?v=bX1X5Z_Rwk8&feature=emb_imp_woyt
Managing Burn Rate
Guest: Neyborly CEO Ben Seidl
What’s the right burn rate?
- It depends! There is no simple formula.
- Burn rate will depend on growth needs and investor appetite (how many firms are interested in funding your company).
- Different businesses will have different expenditure profiles (atoms vs bits), physical businesses have very different profiles than software businesses.
- Distinguish Variable costs (costs that scale increase with each unit sold) vs. Fixed costs (costs that require upfront investment, but do not increase with each unit sold)
- Revenue and asset durability (R&D). Will they provide stable forecastable revenues.
- Facebook & Google ad spend-driven businesses typically have less durability.
- Plan for 24 months
- 4-6 months buffer to fundraise
The Burn Multiple - by David Sacks
- Burn Multiple = Net Burn / Net New ARR
- Anything under 1x is amazing, over 3x you are doing something wrong
How To Manage Your Burn Rate
Be engaged & pro-active, outsourcing the financials can distract from core profitability.