As an early-stage Women’s Health and Wellness/FemTech startup, you would think one of the most challenging hurdles is the ideation or the passion to get the company off the ground. Actually, it’s how to maintain cash investments in an effective and efficient way. Maintaining cash can be one of the most stressful and frustrating parts of being a startup founder. If this is not done correctly, it can have detrimental effects on the growth and sustainability of your business. In this article, we’ll dive into the world of cash burn and explore tips and tricks on how Women’s Health and Wellness/FemTech founders can manage it effectively.
Understanding Cash Burn: A Crucial Metric for Women’s Health and Wellness/FemTech Startup Founders
As a founder of an early-stage Women’s Health and Wellness/FemTech startup, you’re no stranger to the financial rollercoaster that comes with building a business. One critical key to success is understanding your cash burn rate. So, what exactly is it?
Defining Cash Burn Rate
Cash burn rate (often referred to as “cash burn”) represents the speed at which your company consumes its available cash. It’s typically calculated on a monthly basis, although weekly or daily rates can also be used. This metric considers both your revenue and cash flow. Essentially, it tells you how long your startup can operate before it must generate positive cash flow or risk going out of business. This is called your “Runway”.
Why Cash Burn Matters
Now, let’s explore why understanding and managing cash burn is crucial for Women’s Health and Wellness/FemTech startup founders:
- Survival and Runway: Cash burn directly impacts your startup’s survival. If you burn through cash too quickly, you risk running out of operating funds. On the other hand, burning too slowly might mean you’re not investing enough to stay competitive.
- Investor Confidence: Investors closely monitor cash burn. Can you blame them? A high burn rate without clear progress can raise red flags and decrease openness to future cash infusions. Demonstrating efficient cash management boosts investor confidence and your potential to obtain cash in the future.
- Strategic Decision-Making: Knowing your cash burn rate informs most of your strategic decisions. It guides resource allocation, hiring, and growth plans. You should avoid making critical decisions without a solid forecast of your expected cash inflows and outflows.
How Do I Control It?
Okay, I definitely get why Cash Burn matters now, but how do I control it?
- Carry Out an Expense Survey: Regularly analyze your operating expenses or cash outflows. Identify areas where you’re overspending or where cost-saving opportunities exist. The easiest way to do this is to analyze your cash spend every month when reconciling your bank account. Keep track of what you spend cash on monthly and reevaluate if the outflows bring the expected return to your company. As they get started, many companies will complete this analysis on a daily or weekly basis instead of waiting until the end of the month.
- Evaluate SaaS Tools and Recurring Expenses: Review all software subscriptions and recurring costs. Are there duplicate tools across teams/founders? If possible, consolidate. Focus on essential tools that genuinely enhance productivity and contribute to your bottom line or brand growth.
- Budget, Budget, Budget: Implement clear guidelines for spending limits and an approval hierarchy among your team. These implementations ensure that everyone has clear expectations of how much they have to spend and when. If you wear all the proverbial hats, make a streamlined cash spend budget for yourself and track periodically (daily, weekly, or monthly) how you are stacking compared to your plans. The key is to know in advance if you think you will need to reign in the spending or reach out to investors for an infusion. The most successful startups know how much cash they will need to operate and how much they will have available for a at least six months.
- Negotiate Better Payment Terms: Negotiate with vendors, suppliers, and service providers for extended payment terms. These better payment terms can improve cash flow, especially if your company is between funding rounds or waiting for a cash infusion. It’s better to be upfront with your vendors on what and when you can pay vs. potentially running into a cash crunch down the line.
- Close or Stop Progress on Unprofitable Components: Be ruthless in evaluating your product lines, services, or projects. If something consistently drains cash without promising returns or isn’t actualizing as expected, consider shutting it down or taking a break until you have the inflows to pick it back up.
To be successful at an early stage, you must be highly focused on what drives growth and profitability for your company.
Remember, managing cash burn isn’t just about cutting costs—it’s about optimizing resources strategically. Seek professional advice from industry experts and advisors like Withum, if needed, and keep a sharp eye on your runway. By mastering cash burn, you’ll be better suited to navigate the startup journey and be more able to focus on your company’s mission.
Note: Calculating cash burn rate involves comparing changes in cash on hand over a specific period. If you find the formulas complex, consider consulting a professional accountant.
Contact Us
For more information on this topic, please contact a member of Withum’s Women’s Health and Wellness Technology Services Team.
