3 signs your startup is burning cash too quickly

shutterstock_127480352Money is the lifeblood of your young company. Whether you’ve stockpiled Series A funding, solicited friends and family loans and investments, or used your own life savings, going through it too quickly will add to your stress, causing you to make hasty decisions for short-term gains and maybe even start your company’s death spiral.

Here are key signs your business is burning through cash at an unsustainable rate.

  • You’re playing the part of a successful entrepreneur before you’ve earned the role. You’ve got the hip loft offices in the edgy part of town, you’ve recruited top-tier talent and your take-home pay makes the neighbors envious, all before you’ve won your first big client. Everyone knows you must maintain the image of success in order to attract it, but the reality is sure to catch up with the image — eventually. Resist the temptation of the trappings of success. Don’t let your seed capital burn a hole in your corporate pocket. Spend your cash conservatively during your company’s early stages because you never know when you’re going to start turning a profit.
  • You see tough decision that need to be made, but you don’t make them. You can’t possibly get rid of that fancy address and four highly paid vice presidents. What would that do to company morale? How would it look to the market? Unfortunately, entrepreneurship means making tough short-term decisions to assure long-term survival. Sometimes you just have to pull the trigger.
  • You’re buying when you should be leasing. The magic of outsourcing is that it’s not a fixed cost, unlike rent that must be paid each and every month. Or employees, who take home a paycheck twice a month whether they’ve earned it that pay period or not. Just about everything your company might need — from equipment to services to, yes, even employees — can be leased or outsourced. At this time in your company’s early stage existence, your goal should be to base expenses on immediate need and the expectation of turning an eventual profit.

Make every dollar count. Slow down the burn rate, and you’ll buy time, be free of making desperate decisions and look more appealing to outside investors.

 

As a full-service payroll funding, invoicing, payroll taxes and credit monitoring resource, TemPay enables staffing agencies to focus on growing their businesses.