What to look for in your finances during tough times 

Worried about your company finances? Here are five tips on how to get a better understanding of your cash position to make more informed decisions into the future

If you, like many businesses, have been rudely disrupted in the last 18 months (and this last wave of lockdowns and restrictions has hit particularly hard), It’s understandable you might be worried about your finances right now. 

In tough times, it’s only natural to want to revisit your business model, operations, processes, and people to work out how best to move forward. 

But before you do any of that, it’s really important to focus on your business’ cash position. Because a better understanding of your cash position means you can make more informed decisions as you plan for the remainder of the restrictions and beyond.  

So to help, here’s some top tips Trent Mclaren, Weel's Head of Accounting has put together a few metrics that many businesses use  when reviewing your finances: 

How much have you got in the bank? (cash now or cash available)  

Understanding how much cash you can get your hands on right now (should you need or want it) is important at any time, but particularly helpful in tough times. Forget about the debtor that’s supposed to pay you next week! This is about what cash is available right now to use in the business so it’s already in the bank, or available to access should you need it. 

What’s your MRR (Monthly Recurring Revenue)?  

Now this one won’t apply to all business owners but if it does, it’s really helpful to determine your MRR so you can ensure you’ve got enough money coming in each month to match your expenses. If you sell things like subscriptions or a regular monthly service, this could all be considered monthly recurring revenue.

Pay attention to not just new sales each month, but also any churn (lost customers) as this can impact your MRR, and you may need to review and adjust your monthly expenses as a result.

What’s your cash burn rate? (how much cash could you be burning each month or week)  

Your ‘cash burn rate’ refers to the rate your business is using up its cash reserves or cash balance. Once you know your burn rate, you can then focus on what you may need to do to reduce it. So if like many businesses, you are now spending more than you are earning each month, you need to switch your mindset and take action.  

For example, to determine the burn rate for the last quarter, find the difference between your cash balance on the starting date (say 1st April 2021) and the end date (say 30th June 2021). Then divide that total by the number of months in the selected period and the result is your monthly cash burn rate.

How long is your cash runway? (how long will the cash will last)  

Running out of cash can be a daunting prospect. But by working out how long your kitty will last, you’ll get an understanding of your ‘cash runway’.  Doing this quick calculation (dividing the amount in your kitty by your burn rate) will enable you to monitor overspending and your profitability. So if you see your runway getting shorter, you’ll need to take action and cut spending or generate revenue sooner rather than later.  

For example, if there is $200,000 left in the kitty and the burn rate is $50,000 per month, it will take 4 months for a business to run out of cash. 

You might need to bootstrap for a while  

It can help to get creative when things are a bit tight and look at what you can personally do to improve the situation. Are you in a position to put more of your own money into the business or do more yourself until you build back to a self-sustaining level?  

You might need to have some hard discussions with customers, suppliers, and your team so try to be open and transparent and communicate regularly. 

Get a complete view of your expenses 

Having a complete and real time view of your business spending puts you in a position to know whats going on in your business. Weel can help you get a handle on your numbers by giving you real-time visibility of each transaction and full control of business spending.

You can Weel with our free 14-day trial.