5 not-so-obvious ways to extend your startup’s runway
A startup’s runway is the amount of time it can survive based on the cash it has in the bank. The second most common reason why startups fail is running out of cash, and extending your startup’s runway that few weeks extra can mean the difference between surviving and failing.
A quick Google search will give you a dozen tips of how to directly extend your runway (such as curbing expenditure, keeping the team lean, be revenue generating), but from my experience as CFO at Gyana, one can do much more if you plan ahead, just a bit. It may seem counter-intuitive to be planning long-term strategies to solve urgent cashflow issues, but herein lies the lesson: start extending your runway before you actually need to.
1. Don’t lock yourself into long-term contracts
You’re a startup and things can change very quickly. The last thing you need is to be stuck paying for a long-term contract when you really need the cash.
A scenario relevant to most startups is office rental. After team salaries, this is often your next biggest recurring expense. There are so many flexible office space providers these days, anywhere in the world, that you can easily avoid a long-term office rental agreement if you plan it that way.
It may end up costing you more per month, but if you get into a scenario where the runway is getting a bit short, the option to terminate the contract at short notice can make a real difference.
2. Startup credits/discounts
There’s a supportive business community out there, keen to help you grow so that they can grow with you. As a result, they are most happy to do generous discounts or give you free credits so that you will start with them.
Take Cloud Services for example. Amazon AWS, Google Cloud and Microsoft Azure all have programs that provide up to £100,000 of free credits to startups; enough to keep your startup going for a year. And if you time the programs right and make the additional effort for Cloud migration, you can be paying nothing for Cloud Services for years.
3. Claim VAT on expenses
VAT (or its equivalents in the different countries) is a consumption tax applied to purchases of goods or services. It is to be ultimately paid by the consumer, and is not meant to be a tax on individual businesses. Thus (provided you fulfil certain criteria in your respective country), you are eligible to claim the tax back on expenses that were solely used for your business operations.
In the UK, the standard VAT rate is 20%. By being diligent in keeping your tax receipts and filing them properly, this can mean you effectively get a 16% discount on the things the company is purchasing. 16% discount across your purchases is a great cost saving, and the extra cash can help your startup go a lot further.
Tip: Here at Gyana, I always insist the employees get the VAT receipts whenever they can, even if it’s a purchase for £1. Not all stores/companies provide VAT receipts though, and some require you to take additional steps with their customer service. But to claim back £200 on a laptop worth £1,200? Totally worth the effort.
4. Apply for overdrafts
Overdrafts are a short-term way to borrow money up to an arranged limit. You may think, why should the company borrow money when there is cash in the bank?
Overdrafts work more like a revolving loan in that you do not get the cash straight away, but you have the option to get the cash when you need it. There is typically a monthly fee for maintaining the overdraft and when you actually borrow money you will pay interest on the amount borrowed.
The reason why you’d want to apply in advance is because they are happy to lend to you when your business looks in good shape. By the time you are running out of cash, they are probably not going to lend to you (or else set you high interest rates).
Tip: A practical way is to apply for a bank overdraft with whoever you are banking with. You can get to a certain borrowing limit on the back of personal guarantees, and that’s usually enough as a cash buffer for your business.
5. R&D tax credits
This one may be UK specific, but it has certainly helped us at Gyana extend our runway. R&D tax credits are a tax relief provided to support companies that work on innovative projects in science and technology. In short, provided you spend a day or two writing a report justifying how your startup projects meet their R&D criteria, your company can get CASH from the tax authorities even before you start paying company tax!
Tip: You can outsource this to one of the many agents out there who would be willing to do it for a 10–25% cut of the claim. But if you’ve been writing business plans and pitching how innovative your technology is day-to-day anyways, you can learn the process and write the report yourself for that extra bit of cash in the company wallet.
Start extending your runway TODAY
No matter where you are on your startup journey, additional cash in the bank will always be useful. So haggle for the free credits, claim every penny of VAT, and get that overdraft on standby. Extending your runway NOW can save a lot of tears later.
