cash money burning
  • ‘Cash burn rate’ is the measure of negative cash flow in a company. In order to prevent this, businesses should reduce the amount of money they spend in growing their brand and sharpen their focus on the core business.
  • Take a look at what is working and what is not, including assessing the cost and solution sets. “Hope” is not a viable or successful business strategy or tactic.
  • If you survive the immediate cash crisis, you can then begin to evaluate other strategic and tactical options. Stretch the trade, work out longer term payment plans, negotiate a forbearance with the secured parties, develop a turnaround plan, negotiate a restructuring support agreement, or other chapter 11-like actions.

A number of companies are headed into crisis as they burn through their cash holdings, according to the Wall Street Journal. With cash-rich consumers stuck homebound due to the pandemic, ecommerce business’s share prices reached stratospheric levels in 2021, but now that inflation is hurting shoppers’ wallets, these businesses are quickly burning through their cash. 

Protect Your Brand

‘Cash burn rate’ is the measure of negative cash flow in a company. In order to prevent this, businesses should reduce the amount of money they spend in growing their brand and sharpen their focus on the core business. With online retailers, they can bring down burn rates by cutting discounts, reducing dependence on low-margin categories, building efficiencies on logistics, and reducing cash returns through online wallets, according to Business Insider. 

Drew McManigle, Founder and CEO of MACCO Restructuring Group has led numerous companies through both in and out-of-court restructurings, and has some advice for businesses on how to strategically avoid cash burn:

Never Lose Sight of Cash Burn Rates

Burning through cash is a burgeoning issue facing companies. In restructuring, cash is the first thing you should focus on. In McManigle’s experience, fast growing companies with (implicit, implied, or assumed) access to unlimited capital never fully focus on their cash burn rates or efforts to control it until a bump in the road, such as the pandemic, appears and then it is often too late. Having a good view of this disaster before it hits is crucial to saving your brand. 

Think Before You Act

A pragmatic clear-eyed assessment of the overall business must be undertaken quickly. For example, take a look at what is working and what is not, including assessing the cost and solution sets. “Hope” is not a viable or successful business strategy or tactic. That review then drives the rationalization/cash reduction decisions that need to be very thoughtfully undertaken. 

A “slash and burn” attitude towards cash reduction can kill your business just as quickly as the cash burn itself. As an example, firing workers may save money, but you just incurred $70 million in severance costs, not to mention the bad press and angry workforce that exacerbates the problems. There are smarter ways to go about this. 

Work With What You Have to Turn Business Around

Cash burning is always the leading issue for companies that McManigle works with. If you bust a payroll or are seriously behind on taxes or on COD with critical vendors, there is not much you can do. If there is some cash flow, you can “stop the bleeding” by rapid development and implementation of a 13, 24, or 52 week cash flow where every penny in is counted as well as every penny out together with multiple control points/approvals for expenditures. 

If you survive the immediate cash crisis, you can then begin to evaluate other strategic and tactical options. Stretch the trade, work out longer term payment plans, negotiate a forbearance with the secured parties, develop a turnaround plan, negotiate a restructuring support agreement, or other chapter 11-like actions. 

Notify Directors of the Cash Burn

While most are not, Directors should be aware of the cash burn going on within your business. When a company is in distress and reaches the technical “zone of insolvency,” Officers and Directors fiduciary obligations change from obligations to shareholders to an obligation to the creditor groups. 

When trying to avoid cash burn, the most important thing to remember is to not make any rash decisions without consulting your entire team or a professional to ensure you are not making a huge mistake. Let some of these tips guide you in the right direction while you consult with others and hopefully bring your business back into a profitable venture.



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