If you’re a finance professional working for a commerce business, you understand how important it is to find the right balance between spending and maintaining cash reserves. Yet when you move at a fast pace without effective spend management tools that’s often hard to achieve.
One key metric you can monitor to determine your business’s health and success is its burn rate – the rate at which your company is spending its capital. For commerce businesses, where margins can be tight and cash flow volatile, keeping your burn rate under control is essential.
In this blog, we’ll explore why burn rate is crucial for ecommerce companies, how you can optimise it and how tools like Juni can help.
Let’s start by brushing up on some key concepts:
Burn rate is a financial metric that indicates how quickly your company is spending its available capital. It’s typically measured on a monthly basis. For commerce businesses, particularly those operating online, burn rate is a critical measure of financial health. It directly impacts your company’s runway – the amount of time you can continue operating before needing additional capital. This is crucial when balancing inventory, marketing and operational costs.
To calculate your business’s runway, divide your total cash reserves by your burn rate. If your burn rate is high, that means your runway will be shorter. As a result, your company has less time to react to market fluctuations, optimise inventory or strengthen its profitability.
For online retailers, a high burn rate can be a major red flag. It might indicate that your company is overspending in areas like marketing or inventory without seeing a corresponding increase in sales. As a result, you could run into cash flow issues, forcing your business to make quick, often unfavourable decisions such as discounting products or cutting back on essential services. A high burn rate can also deter potential investors, who may see your business as high risk.
There are many strategic measures you can take to monitor and control your company’s burn rate. These include:
Your ecommerce business probably works with multiple channels, suppliers and payment systems, all of which can make financial tracking complex. Consolidating all your financial information in one place gives you a comprehensive view of your spending. This involves engaging stakeholders across your business (such as marketing, supply chain and customer service) to ensure that all expenses are accounted for and can be monitored effectively.
Suppose your business increases its marketing spend to drive sales. In that case, you also need to ensure that the increase in revenue justifies the higher spending. Regularly comparing your burn rate against your revenue allows you to adjust spending in line with sales performance, so you maintain a more sustainable burn rate.
Seasonal trends and promotions are common among most commerce businesses, and these can cause spikes and dips in both spending and revenue. Analysing your burn rate over time can help you identify these trends. For example, you may find that your burn rate increases significantly during holiday seasons due to higher inventory and marketing costs. By understanding these patterns, you can plan for them, ensuring that your cash flow remains healthy even during high-spend periods.
Identifying non-essential expenses
To improve your burn rate, start by identifying non-essential expenses. This might include redundant software subscriptions, underperforming marketing campaigns or excess inventory that ties up capital. Eliminating or reducing these costs can have a significant impact on your overall burn rate, freeing up resources that can be better invested elsewhere.
Forecasting for better financial planning
Effective cash flow forecasting is indispensable in managing your burn rate, especially in the unpredictable world of ecommerce. By predicting various financial scenarios, you can prepare for potential downturns and make better decisions that align with your business goals. For example, forecasting can help you anticipate how much inventory to purchase before a major sales event, reducing the risk of overstocking or stockouts.
Cutting costs if necessary
Sometimes, reducing your burn rate requires reducing costs. For online retailers, common areas to consider include renegotiating supplier contracts, optimising logistics or scaling back on non-performing marketing campaigns. The key is to make cuts strategically, so you don’t compromise your ability to drive sales or keep customers satisfied.
Budgeting
A well-structured budget is a fundamental tool in managing your burn rate. It’s important to set clear spending limits across various departments such as marketing, inventory and operations. Regularly reviewing your budget against actual expenses helps keep your burn rate within manageable limits. Effective budgeting requires collaboration across departments to ensure that everyone understands and adheres to financial constraints, which is especially important in a fast-moving environment like online retail.
Increasing revenue without increasing expenses
One of the most effective ways to improve your burn rate is to increase revenue without a corresponding increase in expenses. For e-commerce businesses, this might involve optimising your pricing strategy, enhancing customer loyalty programs or expanding into new sales channels with minimal additional costs. The goal is to boost your top line while keeping your bottom line stable, so you improve your business’s overall financial health.
To keep your burn rate under control, it’s helpful to use spend management tools. Solutions like Juni offer many features designed to help maintain a healthy balance between burn rate and runway, including:
For online retailers, managing multiple payment gateways, currencies and sales channels can be a major administrative challenge. Juni’s platform lets you centralise your financial data, so it becomes easier to monitor and manage your expenses across the board. With our Juni cards and mobile payment capabilities, you get a real-time overview of your spend across multiple currencies and platforms. This centralisation helps you keep your burn rate on track while also streamlining administration.
Autocollecting and matching invoices and receipts
Managing invoices and receipts manually is time-consuming and prone to errors that can impact your cash flow and financial accuracy. Juni Match automates this process by integrating with your Gmail, and automatically collecting and matching receipts and invoices from platforms like Facebook Ads, Shopify and TikTok. This automation is particularly beneficial if your marketing spend is spread across multiple channels.
You can also automate collecting any of your receipts or invoices, either with our Gmail integration and supported vendors, or with email forwarding. By improving the accuracy of your financial records, you gain more oversight and control over your burn rate.
Syncing bank accounts to centralise spend
Ecommerce businesses often juggle multiple bank accounts, payment processors and revenue streams. This makes it challenging to track cash flow accurately. Juni lets you integrate and track all your financial data, including payments from platforms like PayPal and Stripe, in one unified dashboard. This seamless integration gives you a full overview of your cash flow and makes it much easier to track expenses, so you’re in a better position to monitor your burn rate and avoid unexpected cash flow issues.
Setting controls to manage employee spend
Managing employee expenses is also critical in controlling your burn rate. Juni lets you set custom spending limits and permissions on virtual cards to ensure that employees stick to company budgets. This helps prevent overspending, particularly during peak sales periods or marketing campaigns, keeping your burn rate in check.
Accessing flexible financing to boost cash flow
Commerce businesses often face the challenge of balancing inventory and marketing purchases with cash flow. Sustaining growth can be tricky when there’s high spend on inventory and marketing in the run up to peak seasons, while bridging the gap during low periods
Juni Capital offers fast and flexible financing options that allow you to extend payment terms, finance inventory and even fund ad campaigns. By improving liquidity, these financing solutions help you negotiate better terms with suppliers and manage cash flow more effectively, all of which helps you maintain a healthier burn rate.
Close books faster at month-end with automation
Closing your books quickly at the end of each month is essential for accurate financial reporting, particularly in a fast-moving industry like ecommerce. Juni’s platform integrates with accounting tools like Fortnox and Exact Online, automating your month-end closing process and reducing manual work. It also provides real-time data that you can use to make informed decisions about your burn rate and overall financial health.
Managing your burn rate effectively can mean the difference between scaling your business and struggling to grow. By centralising your financial data and automating key processes, spend management tools like Juni can give you more control over your expenses, optimise your cash flow and ultimately help you overperform against your burn rate.
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