Do you understand your cash burn rate?
The actual entire cost base of keeping the doors open each day is rarely understood by SMEs and, in fact, we often see other accountants getting confused through over-thinking this important benchmark. No-one enters small business to lose money or not be able to afford to pay themselves properly. So, understanding your cash burn rate is critically important.
“For a business owner, the cash burn rate is every business cost incurred plus their own household running costs.”
Your cash burn rate is so much more than just ‘breaking even’. Only this whole number will provide a base-line of minimum return on investment (ROI) to use as a line in the sand to ensure it’s reached each day in invoices raised or in takings at the register.
“By understanding your cash burn rate, annual revenue growth targets can be set.”
This can be broken down to a notional increase per day on the daily cash burn rate, and then 90-day targets can be set with the business owner with more conviction or belief that they’re achievable.
Calculating your cash burn rate may seem like a daunting task, and that’s where our expertise and guidance comes into play. We work closely with our clients to determine this rate and set realistic business targets, so you can effectively manage your business and achieve true profitability.
Want to know more? Give us a call on (08) 8536 3833, or flick us an email to set up a meeting with one of our experts to guide you through it.
Author: Andrew Morris, Director Glyn Morris and Co