Burn Rate

If there’s one thing that an entrepreneur needs to watch, it’s their burn rate. This is not only good for business, but its good for investors. There’s nothing that kills an investment like poor fiscal management.

If you don’t watch your cash, investors are going to think one of three things: you don’t care about their money, you think you’re going to get more money when you run out, or you don’t have a clue what’s going on with your money. Any or all of these scenarios will sour a leadership team and potentially tank a company.

Most entrepreneurs actually care about their cash burn but miscalculate an investor reaction to unexpected shortages. First off, everyone has shortages so you should feel at ease about this. Secondly, when there are shortages, one should recalibrate the financial models and make sure that your plan is up to snuff, because investors don’t like to invest twice in the same inaccurate game plan. Thirdly, most investors actually care about your business and want to help where they can, so a little openness in the finances can elicit valuable feedback.

All in all, you gotta watch the burn and you gotta make it clear that you care about your burn much more than your investors do. So before they ask the question, break the news and chase it with a refreshed plan.