Burn rate is one of the key metrics that startups always need to be monitoring. It’s the quickest and most accurate way of knowing where you stand. If you were to view your startup’s financial health as a candle, your burn rate helps you know exactly how much you have left on the candle, and when you combine it with real-time data, you’ll also know how quickly the flame is consuming it.
With this knowledge at your disposal, you can approach every financial and operational decision with the confidence of knowing how your burn rate is impacted. Here are some ways you can use real-time data to better manage your burn rate.
Real-Time Data Means Better Management of Cash
Real-time data means that you have a system set up that automatically updates all your accounts and lets you get information from them in real-time. For instance, if you were to receive a major influx of cash in one of your accounts, you would be able to see in real-time how that cash impacts your burn rate. Or, if you were to incur on a big purchase, you would also see how that decrease in cash flow would increase your burn rate.
It’s important to keep in mind that real-time data isn’t meant for you to stare at your dashboard, watching how your data changes. After all, it’s not a stock trading chart, and using it in that way defeats its purpose.
3 Ways Real-time Data Helps Your Startup
Having information at your disposal is useful, but knowing specifically how to implement it into your financial dashboard and decision-making is where it matters. So here are three ways in which real-time data can help your startup.
1. It helps you develop strategies based on the number of operating months you have left.
Having an accurate deadline for the financial milestones you have to reach for your startup to grow is essential to help you develop an effective strategy. By knowing exactly how much time you have left, you can filter out any unnecessary actions and only focus your energy on your actions to reach your financial milestones within the timeframe you need.
2. It gives you feedback on how well your strategies are working.
Once you have your priorities in order, the next aspect is knowing how effective your strategies are. Real-time data gives you an accurate gauge of how everything is working. With this knowledge, you can then make any adjustments necessary to optimize your strategies, or if you aren’t getting the results you were after, change the strategy altogether.
For example, if you were to invest in a new marketing strategy. You would be able to see how the marketing effort’s ROI actually impacts your burn rate. This way, you would know exactly how much your marketing makes a difference.
With this knowledge, if your goal was to increase your runway, you would then be able to see if more marketing is the way to go or if you need to find ways to cut expenses.
3. It’s a great way to show meaningful data to investors.
Investors are first and foremost interested in making a profit. And one of the best indicators of success for startups is seeing how you manage your cash. By tracking your data over time, you’ll be able to give them much more insight into your expense management
instead of just giving them a static spreadsheet with numbers. They’ll See graphs that update as time goes by, which helps your investors better understand your needs.
This gives your investors complete transparency and trust into how your startup manages itself and the impact their investment would make.
Tips on Managing Burn Rate
Knowing how your burn rate ebbs and flows is useful. But how can you manage it and improve it?
Here are a few tips on how to manage your burn rate.
- Know how much each area of your startup impacts your burn rate. By understanding how your payroll, marketing, sales revenue, and every aspect of your business makes an impact will let you know how much each area moves the needle.
- Track your fixed and variable costs. By keeping track of your costs, you’ll be able to better manage the speed of your burn rate and know its upper and lower limits.
- Be prepared to adapt. Startups can be unpredictable. That is why you have to be prepared to adapt your strategy. And this is why real-time data’s ability to give you instant feedback on your actions can be a game changer.
A Partner in Real-Time Data
It’s easy to see how having more and better financial data can help your business. Not so easy is figuring out how to integrate all the necessary systems needed to make it practical and actionable.
This is where having an experienced financial partner can be a key resource. With our experience working with startups, we can help you set up your real-time data infrastructure in the most effective way so that there’s no need for you to waste any time guessing or trying out solutions that don’t fit your needs. If you are ready to explore how real-time data can transform your decision-making, click here to schedule a call with one of our accountants.