Different Ways to Extend Your Startup's Financial Runway

Startup runway refers to how long your startup can operate before it runs out of cash. It’s essentially a measure of your startup’s lifeline, and this metric can signal the likelihood of your company’s success or failure. Startups with longer runway are more likely to keep steady and succeed while those with shorter runway may need to raise additional funding, get acquired, or pivot to a different business model or strategy.

Whichever the case, it’s important to focus on maximizing your startup’s runway to ensure a sustainable and growing business.

Recognizing the Signs: When is it Time to Extend or Save?

Especially when startups make heavy investments or keep on pushing back deadlines, their financial runway can and will be affected. You’ll realize you need to start saving or extending runway when your startup begins to experience the following:

• Decreased monthly revenue or slower growth rate

Without a healthy revenue stream, it’s only a matter of time before you run out of funding. If revenue generation is still slow, that’s a sign you need to think about cutting costs or getting more investments.

• Increase in monthly burn rate without equivalent returns

In the ideal world, your investments would generate ROI and ramp up more revenue. In the real world, not everything works out that easily, and it would take time, effort, and money to generate high and steady returns. Thus, watch out for your burn rate, and when the cash pool’s depleting without equivalent returns, take action before it’s too late.

• An upcoming change or pivot in business strategy

In the startup world, you’d have to make a lot of readjustments to continue moving forward. It’s okay, and it’s normal to pivot. It doesn’t necessarily mean changing the vision but just adjusting the strategy to efficiently achieve the desired outcome. However, doing so would usually require funding and strategic implementation, thus the need to save or extend the runway.

• Projections showing a limited cash buffer in the foreseeable future

Startups should have a cash buffer or reserve fund set aside for unplanned expenses. If projections show that you won’t have enough cash buffer in the foreseeable future, it’s time to plan how to extend your runway as early as today.

Practical Strategies to Extend the Runway

There are lots of ways to extend your startup’s runway. The following are the biggest and most common ones:

1. Cut Non-essential Costs

In business, you need to spend money to make money, but that only works if you’re spending it on the ‘right’ things. To survive and see it to the better days, you need to take a hard look at your expenses and find ways to minimize discretionary expenses. For example, office space is one of the largest expenses of a startup business. You can actually consider either downsizing your office space or opting for co-working spaces to further reduce the costs.

1. Streamline Operations

Your human capital should be used for the bigger, more important work. Allow software tools to do the rest. If you simply take the time to re-evaluate all of your company’s tasks and ask yourself how you can automate and improve them, you’ll be able to streamline your operations more effectively and generate better results. Also, we now live in the age of the ‘gig economy’. Maximize independent contractors to take care of non-core activities to save more and optimize more. If you really need a full-time workforce but can’t afford it, some companies even offer stock options in lieu of high salaries for key personnel.

1. Renegotiate Contracts

You can do a SaaS audit using tools like Talisman to instantly identify which apps your team is not heavily utilizing, and work with vendors or suppliers to negotiate better deals. You can also consider longer payment terms or ask for possible discounts for early payments. By trying to renegotiate contracts, you have nothing to lose and everything to gain.

1. Be creative

The goal is to save money or make money, and there are a lot of unique ways to generate revenue like offering consultations and workshops. Make the most of your expertise in your niche area and share it to add value to your industry, build relationships, and generate revenue in the process. You can also do partnerships or joint ventures with other businesses to tap into new revenue streams. Try to think outside the box as you bootstrap or diversify revenue sources.

Preparing for a Fundraising Round

If you’re ready for another round of funding, you need to take care of the following key components:

Financial Forensics

Your balance sheets, financial statements, income statements, and cash flow statements should all be in order. It’s not just about balancing the books; it’s about comprehensively evaluating your financial health and strategic positioning. You’d also need to understand your valuation and the amount of equity you're willing to give up.

Develop a Compelling Narrative

Investors receive a lot of proposals and pitches from numerous startups. Make sure that you stand out by thoroughly articulating your value proposition. Present a vision for the future and how additional funding will help achieve that.

Conclusion

Budgeting, cost control, and effective financial management are all key factors to succeed as a startup. You need to constantly monitor and adjust your financial strategies to stay afloat while working on your biggest goals.

To extend your runway, you need to be proactive, innovative, and adaptive. Take care of your financial runway, so you can better navigate startup challenges and seize the right opportunities as they come.