5 ways to fix your operating cash burn

If your business is facing a crisis that’s caused an unexpected drop in sales outside your control, you may find yourself in a negative cash flow situation. There are a few ways you might be able to reduce the cash you are ‘burning’ each week.

First, calculate your cash zero date
The cash burn rate is the amount of money you are losing each week. Your sense of urgency is likely to be based on the time you have left before you run out of cash. Add up existing weekly income, subtract expenses and then divide this amount into your cash reserves to calculate the number of weeks until you run out of cash.

Here are five tips to help extend this timeframe:

1. Reduce the burn rate
Depending on how the crisis has affected your business, you may be able to lower some expenses while still ensuring that you are able to operate. Some ways to do this include:

• cut all unnecessary overhead costs
• negotiate lower rent
• reduce staff hours or numbers, even only short-term
• change monthly subscription plans to lower rates
• collaborate with businesses by sharing your staff and costs

Go through your last few months of invoices and credit card statements to see what expenses could be cut. Now is the time to make hard decisions to reduce anything that isn’t mission critical. These items may have built up over time, and you can look back with perspective to see which ones were not 100 percent necessary.

2. Increase cash reserves
The more cash you have in reserve the longer you can ride out a dip in sales. But if the crisis looks like it will be lengthy, and you know current operating cash will run out before you project a recovery in sales, you may need to access additional funds.

Traditional methods like business loans and adding in more of your own capital are potential options, but you should identify other ways to increase your cash reserve balance, such as:

• liquidating unused assets
• selling assets and leasing back when needed
• selling excess stock levels and not replacing
• clearing out obsolete raw materials
• crowdfunding or seeking external investors
• re-investing in the business using past retained profit or your own savings
• borrowing more funds
• accessing any subsidies or grants

It’s sensible to have contingencies in place to access working capital if you need it, allowing your business to continue to operate when the crisis ends, even if some parts are temporary. At the end of the day you need to assess the potential for your business to recover and how much debt or equity funding you’re willing to accept.

3. Negotiate better payment terms
You might be able to negotiate partial payments or deferred payments with your suppliers until your business recovers. In the short term, you could consider:

• moving to interest only loans
• asking suppliers to let you make partial payments or pay at a later date
• asking to delay any rent or lease costs
• deferring any tax payments if that is an option open to you

If you’re changing any legal or contractual obligations including anything with the IRS, be sure to get professional legal or tax advice before you make any decisions that could have long term implications.

4. Identify alternate revenue streams
Some businesses are able to find new revenue, even temporarily, by adapting or changing how they do business. It could be possible to move parts of your business online, start a joint venture with other businesses who are still operating, identify new customer segments or possibly reinvent the business and look for a new market.

With any crisis, take the time to plan what your business can do to weather the storm and review your business continuity planning to reduce the impact of future events.

5. Close parts of the business that no longer make economic sense
It’s possible some components of your business have not been contributing to your net profit. Maybe you’ve kept them for sentimental reasons (first location, initial product line, old customers still buying limited amounts, loyal employees). You may have diversified into other markets, expanded into new customer segments, introduced new products and bolted on components to take advantage of a past opportunity.

But if closing or selling/liquidating part of your business will save the whole, then it starts to make sense. You probably intuitively know which products, services, branches and stores need to go based on what’s happened to your business.

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