Talking Cents

5 Reasons Why You Should Be Tracking Your Small Business's Burn Rate

As a small business owner, you likely have your hands full with managing day-to-day operations, securing new customers, and keeping your business afloat. While it's easy to become engrossed in the hustle and bustle of running a small business, it's important to keep a close eye on your finances. One essential metric to track is your burn rate, which refers to the rate at which your business is spending money. 

Tracking your small business's burn rate can provide valuable insights into your company's financial health, and help you make informed decisions about spending and growth. In this article, we'll explore 5 reasons why you should be tracking your small business's burn rate.

1. Helps You Determine Your Cash Runway

One of the most important reasons to track your burn rate is to determine your cash runway. Your cash runway is the amount of time you have until your business runs out of money. By tracking your burn rate, you can get a better understanding of how long your business can operate before you need to raise more funds. This information is critical when planning for the future and making financial decisions. 

2. Allows You to Identify Potential Cash Flow Issues

Tracking your burn rate can also help you identify potential cash flow issues before they become a more significant problem. If your burn rate is higher than expected, it could mean that you're spending too much money or that your revenue isn't meeting expectations. By catching these issues early on, you can make adjustments to your budget and operations before it's too late.

3. Helps You Make Informed Business Decision

Another reason to track your burn rate is to make informed business decisions. For example, if your burn rate is high, you may need to cut costs or find new ways to increase revenue. By having a clear understanding of your business's financial health, you can make informed decisions that will help you achieve your goals and stay on track. 

4. Provides Valuable Information to Investors

If you're seeking funding from investors, your burn rate is a crucial parametre that they'll want to see. Investors want to know that you're using their money wisely and that you have a clear plan for the future. By tracking your burn rate and understanding your cash runway, you can provide investors with valuable information that will help them make an informed decision about investing in your business.

5. Helps You Stay Accountable

Finally, tracking your burn rate can help you stay accountable to yourself and your team. By tracking your burn rate, you can hold yourself accountable for your financial decisions and ensure that you're working towards your goals.

Tracking your small business's burn rate is a crucial step in understanding your financial health and making informed business decisions. By determining your cash runway, identifying potential cash flow issues, making informed decisions, providing valuable information to investors, and staying accountable, you can set your business up for long-term success. 

If you're not currently tracking your burn rate, now is the time to start. Work with a trusted accountant such as M.A.S. Partners  to get a better understanding of your finances and develop a plan for the future. 

Consider M.A.S. Partners For Your Small Business Accounting Needs:

If you are looking for accounting services that specialise in small business requirements look no further than us. M.A.S. Partners are one of the leading accounting firms who help small businesses reach their potential. Our small business accountants in Sydney and Zetland are here to help you with your business needs. Click here.