Cash burn rate--three simple words with the power to wreak havoc on your start-up business. Spending venture capital on daily operations before generating a positive cash flow is risky.
So, how do you prevent a negative cash flow from burning through your hard-acquired investor funding? Generally speaking, start by reducing costs. More specifically, optimize labor expenses with smarter, more efficient talent management.
Labor is typically a business's first or second-highest operating cost. Workforce needs fluctuate with internal growth rates and external market behavior. Regularly analyzing your payroll expenses helps control your burn rate.
Evaluate your current labor against three factors:
1. Do you have the right people in the right roles?
2. What are the must-have vs. acceptable skill sets for each job?
3. How many, if any, employees are underperforming?
Keep your teams current on industry teams with professional development opportunities. Long-term continuing education builds a more competent internal talent pool and increases retention to the extent that employees are more invested in your company.
Identify essential vs. optimal skill sets at hiring and for training purposes. Create clear job descriptions and performance criteria. Clear expectations and evaluation measures separate underperforming staff from competent people assigned to the wrong job. Or flaws in the job description.
A thorough workforce review might also identify cost-saving opportunities to outsource some tasks and subsequently reduce your burn rate.
Examining your workforce plan in a structured way can help you better plan for employee development and roles while lowering your gross burn rate, especially in the early stages of your business.
A thorough workforce review likely revealed cost-reducing opportunities. Likewise, a comprehensive audit of your compensation and benefits packages could have the same positive impact on your monthly burn rate.
First, ensure your compensation and benefits packages comply with local employment laws. U.S.-based businesses must operate per the Fair Labor Standards Act and Equal Pay Act.
Failure to meet federal, state, or local labor laws can result in heavy fines, driving your burn rate in the wrong direction: up.
There are multiple free and paid resources to assess your compensation levels against industry standards. Your hiring managers need this information to attract and retain top talent. Both overpaying and high turnover can affect cash flow.
You also need to evaluate benefit packages. Are they above, equal to, or below competitors' offerings? Are they priced realistically, or are you burning additional cash on overpriced benefits? Adding more choices at different price levels or wellness programs to lower healthcare costs can reduce burn by decreasing expenses.
Additional cost-effective, competitive benefit packages can include:
1. Non-monetary offerings like flexible work schedules and company-funded career development opportunities
2. Paid mental health days to minimize employee burnout
3. Family perks starting with maximum parental leave and childcare cost-sharing
Whatever benefits you offer, track usage to avoid paying for unwanted programs and services.
Consider hiring qualified candidates worldwide to reduce your burn rate. Other countries present various savings opportunities, from lower wages to less expensive benefits.
For example, the Asia Pacific (APAC) labor market supplies highly qualified, educated technology workers to ecommerce, financial services, healthcare, and education start-ups for up to 67% lower costs than equally trained U.S. workers.
Companies can easily double or triple headcount by hiring APAC professionals with the same hiring budget they'd spend on one U.S. employee. Taiwan's salary structure is an excellent example of how much you can save hiring internationally.
Attending to the moving parts of your business, especially cost-saving opportunities, to ensure a positive cash flow. For example, imagine reducing salary costs by up to 67% over U.S. wages while hiring and onboarding international talent in days or weeks instead of months. Choose Worca's end-to-end employer of record (EOR) solutions to identify and manage outstanding candidates.
Save millions of labor dollars as you scale operations by hiring globally. Avoid the hurdles of establishing local entities and frustrations of visa sponsorships. Get right outcome with Worca
