Burn Rate

The burn rate is typically used to describe the rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow from operations. It is a measure of negative cash flow. The burn rate is usually quoted in terms of cash spent per month.

It is mostly used in the Startup world and in the bootstrap world of small businesses it’s not such a buzzword. I have a different point of view.

In small businesses, there is also a concept of burn rate. Let’s do this thought experiment, you have a fixed cost to run your business and you have to pay salaries to your team members. After you calculate the total amount you spend each month and divided it by Business day you have a daily burn rate. The only difference when it comes to a bootstrap business where the money comes in terms of your customer paying you for the services they use. This money can be predictable in terms of subscription fees or could be random based on some custom project or work.

For the business to be fully stable and profitable there has to be a predictable cash flow. In an ideal world, the flow can be calculated up to per day basis and it can be paid by the client end of the month. Until you are in a position to make sure that all your fixed cost is being covered by a study flow of income, you have a certain level of risk involved in your business.

The ability to create a line of tiny products that could support this daily burn rate in most cases exceed them by 2x would be the position that you would want yourself to be in. It’s is not a huge ask when your product serves as a 10X value to your clients. Think about it practically and at times we make the mistake of treating small income insignificant. In my personal case too, I don’t like to do agency work wherein we create additional web pages or apps for our clients to fulfil some of their needs. My rationale is it diverts the focus and makes us wonder in different areas of work. Your ability to make money when you sleep is gone out of the door. It’s a slow process to make a steady flow of guaranteed income but it’s a worthwhile exercise. I may be right or wrong and only the future will tell us.

The intermediate position here could be creating some info products or one-day training workshops that we could sell out of the box without much preparation and additional effort. Yesterday I listen to a podcast where one of the consultants was selling an ebook worth 29 dollars and made a revenue of over 30 thousand dollars per year. And that info product alone gave him an opportunity to leave his job and become a consultant. The ability to create something in a few weeks or months and to make it a sellable product that can be e done on daily basis is a beautiful experiment to try out.

What is your daily burn rate?


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