Obvious (and Not-So-Obvious) Ways to Manage Cash Burn

As a startup, managing your cash position closely is key to ensuring you have enough time to achieve your next objective – whether that’s product market fit, your next fundraising round, or becoming default-alive. Doing so requires paying close attention to your financials to understand what operational decisions you can make in case you need more time.

In this article, we’ll break down strategies you can use to extend your cash runway. We’ll give an overview of some commonly cited methods, as well as less-obvious tactics that might go overlooked. Whatever your objective, these tips will help you manage burn while still optimizing for your stated objectives. 

What Is Burn Rate? 

First, let's explain some terms we'll use throughout the article. The term ‘burn rate’ refers to the rate at which a startup or new company uses ("burns") its cash. Burn rate is effectively negative cash flow and is typically measured in monthly increments. Your startup’s “runway” is the number of months between now and the date when the startup will run out of cash. 

Startups use burn rate to refer to the period during which early-stage financing (loans, private equity investing, and so on) forms the operating capital of a company. Once a startup begins generating positive cash flow, burn rate is usually (but not always) shelved. You can find more information on burn rate, and how to calculate it, in this article.  

Common Ways to Manage Burn 

1. Reduce Headcount or Delay Hiring: The largest line item for most startups is payroll. Cutting non-essential roles or delaying new hires can significantly slow burn. However, make sure you consider the implications of doing so on your current objectives. If, for example, you need to achieve a certain level of growth to reach default-alive, make sure that your cuts don’t impact your ability to close, onboard, and support new customers. 
2. Cut Non-Essential Expenses: Subscriptions, software tools, consultants, and nice-to-haves (like catered lunches or expensive office space) are easy targets for cost-cutting measures. The best way to accomplish this is by reviewing the Operational Expenses portion of your Income Statement account-by-account and vendor-by-vendor to see which expenses are still necessary vs. which are operational bloat.  
3. Pause or Reduce Marketing Spend: Scaling back paid ads or agency work can conserve cash, especially if marketing efforts aren’t showing clear ROI. While this may seem counterintuitive if you’re in a growth phase, this may be the right step if you’re approaching a cash crunch and your CAC outweighs the near-term return from new customers. As an example, if you spend $100 on marketing to acquire a new customer and their LTV is $240 based on 2 years’ worth of renewals, but only expect $80 in the first 12 months, it may be worthwhile to throttle marketing spend back until you are able to at least break even on your CAC with your first 12 months’ worth of revenue. 
4. Delay Capital Expenditures: Postpone large purchases like office buildouts, new infrastructure, or large software/hardware investments until your financial position strengthens. Just make sure that you aren’t postponing initiatives that are required to achieve your current objective – if your goal is growth, and a major product enhancement will unlock additional revenue/a new customer base, it may be worth pursuing.

Less-Obvious Ways to Manage Burn 

1. Automate Repetitive Processes to Reduce Expense: Startups often rely heavily on manual processes in their early days, but as your operations grow, these tasks can quickly become a hidden drain on time and money. Automating repetitive workflows (invoicing, customer onboarding, reporting, data entry, support ticket routing, etc.) can free up your team’s capacity and reduce the need for additional hires. Tools like Zapier as well as built-in automation within platforms like HubSpot, QuickBooks, or Airtable can streamline operations at a low cost. Before you automate, take the time to document your workflows and identify the areas where human input is unnecessary or prone to error. Then prioritize automations that deliver the highest time or cost savings. The small benefit of these automations will deliver a compounding benefit over time as you scale operations without scaling expenses. 
2. Manage A/R (and Accrued Revenue) Closely: If you’re using accrual basis accounting, you balance sheet likely has Accounts Receivable (invoiced revenue that you’re waiting to collect) and may have Accrued Revenue (revenue you’ve delivered on, but haven’t invoiced). Large balances in either of these accounts imply that you are delivering services for which there is a delay in you getting paid. Carrying large balances in A/R at the end of each month may mean that you’re not doing enough to follow up on invoices and collect payment, whereas carrying large balances of accrued revenue may mean that your invoicing process should be more efficient. 
3. Manage A/P (and Accrued Expenses) Closely: Similar to A/R and Accrued Revenue, your balance may have Accounts Payable (bills you’ve received that you haven’t paid) and Accrued Expenses (expenses you’ve incurred, but haven’t been billed for). Carrying large balances in A/P implies that you’re delaying payment on bills until they’re due, while carrying balances in Accrued Expenses means that you may need to push vendors to invoice you on time. Be careful with letting these accounts grow large to avoid a scenario where multiple months’ worth of payments need to be paid at the same time – putting you in a cash crunch. 
4. Extend Vendor Payment Terms: Negotiating extended (45-, 60-, or 90-day) payment terms with suppliers and vendors can improve cash flow by delaying outflows without impacting operations. However, the reality of being an early-stage startup is that you often have much less bargaining power than your often larger and more well-established competitors.  
5. Pre-Sell Products or Services: Offering discounts for upfront payment or early access pulls in revenue now without requiring new capital. One way of thinking about this – find your most engaged customers and offer pre-sold renewals at a discounted price, or affiliate discounts they can offer their friends if they evangelize your product. 
6. Offer Equity in Exchange for Salaries or Services: It’s common for early employees of high-growth startups to receive equity as part of their compensation packages. You can also consider using equity as a tool to pay vendors that are critical, long-term partners to your startup. However, equity is often the most expensive source of capital available to a startup. Be cautious about doling out too much equity, too early – as it could dilute the ownership stakes of founders and early employees significantly in the long run. 
7. Revisit Your Pricing Strategy: Small increases in your price (or a recurring price increase  built into your terms of service) can improve margins without impacting conversion. Make sure you assess your churn and the value you deliver to your customers before making the decision to raise prices – you don’t want price increases to lead to an overall reduction in revenue due to unexpected customer churn. 
8. Use R&D Tax Credits or Local Incentives: Federal and state R&D credits can generate significant cash refunds. Many founders overlook these until tax time, but you can be prepared for this process (and understand their potential cash flow implications) well before then by working with your accounting firm. 

Effectively managing your runway is one of the most critical responsibilities for any startup founder. Whether through widely known cost-cutting measures or overlooked tactics like optimizing accounts receivable or leveraging R&D tax credits, there are a variety of ways to preserve cash without compromising your long-term growth strategy. Whether extending your runway, preparing for a raise, or navigating to profitability, the key is to regularly review your financial data and align spending decisions with your current stage and most pressing objectives. 

No two startups have the same path, which is why a tailored financial strategy is so important. At Founder’s CPA, we work closely with early-stage companies to build smart, forward-looking plans that balance growth and capital efficiency. Reach out to Founder’s CPA today to learn more about how we can help you manage your runway today!