The Burn Rate Lens

What happens when your biggest client goes quiet? Panic — unless you know your numbers. Melissa opens with a real client story: a smart founder, a client that went radio silent, and the one question that changed everything: what is your daily burn rate?

Turns out, knowing that number is the difference between a business owner who can make strategic moves and one who's just hoping for the best.

Amigas Coffee Talk | Denver Metro Thursday, May 28 | 9:00AM

I'm speaking at an intimate morning event in the Denver area. We're talking identity, life transitions, and what it looks like to build a business that actually fits your life. If you're a woman building something with intention, I'd love to see you there. Spots are limited.

👉 Reserve your seat here https://www.sarineplanning.com/amigas-events-page/coffeetalkmelissaarmstrong

Not sure if your business is healthy or just busy? No Se Habla Confusion is a $500 financial assessment for creative agencies on QBO doing $300K–$3M. I dig into your numbers, find the gaps, and tell you exactly where you stand. Email info@steadyhandaccounting.com — subject line: No Se Habla Confusion. 

Let's connect!

LI: https://www.linkedin.com/in/armstrongmelissacpa/

Website: https://steadyhandaccounting.com/

Transcript

Melissa Armstrong 0:54

Hey, hey. Welcome back to No Se Habla Taxes, the podcast for creative agency owners who want to actually understand their finances without the headache. I'm Melissa Armstrong, CBA fractional controller, and the person who will tell you the truth about your numbers even when it's uncomfortable. Today we're talking about burn rate, burn baby burn. Specifically daily burn rate, and I wanna make a prediction right now, you don't know yours, and that's not me being mean. That is just a reality for most agency numbers. By the end of this episode, you will know the number, and once you do, you're going to wonder how you made decisions without it. Let's get into it. Okay. Confession time. I work with a client, smart founder, creative agency, doing really well by most measures. And a while back they called me in a low grade panic. Their biggest client had just gone quiet, not officially paused, not canceled, just quiet radio, silence emails, unanswered project on hold. My client is sitting there going, how long can we actually sustain this? They had a number in their head, roughly how much was in the bank, roughly what payroll cost every month. But rough is not a plan. All they had was anxiety and a calculator. So I asked them one question, what is your daily burn rate? Can you hear the crickets? Uh huh. So could I And I get it. Listen, I really do. Nobody teaches this in the creative world. Nobody hands you a finance class when you start an agency, you figure it out as you go or you call somebody like me. So today we're going to fix that gap in your knowledge together. But Melissa, what is the daily burn rate? Simple. This is how much money your business spends every single day to keep the lights on. Not per project, not per client every single day, whether you invoice that day or not, whether the work goes great or goes sideways, the meter is running and you're shelling cash out. It's your salaries, it's your subscriptions, your rent, your contractors, your insurance, your little monthly charges you've forgotten about because they're automatic, all of it divided by the number of business days in the month. That's it. That's your daily burn rate. And once you know that number. Everything else starts to make more sense, including why a client going quiet is a five alarm situation and not just an inconvenience. Now, why do agencies underestimate this number? And this is what I see all the time. Agency owners look at their biggest expense usually. Payroll and they use that as a gut check. If payroll is covered, man, everything's fine, but payroll is not your whole burn, not even close. There's software, there's project management tools, design subscriptions, accounting platforms, liability insurance that you pay once a year. It's the part-time bookkeeper you pay quarterly and somehow. You forget to include that number in your monthly calculation. It's also the contractor you brought in to help you during overflow work and busy season, and none of that is wrong. That's just the real cost of running a business. But if you're not adding it all up, you're working with an incomplete picture. And incomplete pictures lead to bad decisions. Now let's talk about this other thing called the pass through trap. And here is where it gets a little sneaky, and I want you to pay attention to this part. A lot of agencies handle expenses on behalf of their clients, ad spend, stock photos, print production, contractor fees that get billed through. These are pass throughs. Most of the time. Okay, here's the thing. If those expenses hit your bank account before you get reimbursed, they can distort your burn rate calculation. And yeah, most of the time you're fronting these expenses, right? Like there are things that you can. Anticipate and estimate and like make a plan to bill for those in advance. But then there are others that are variable and you end up paying for them before you get reimbursed and that's fine. But when that happens, you look at your outflows and you think, oh, we're burning a lot this month, when actually a big chunk of this money is stuff that you're going to get back. Now when you calculate your burn, you need to separate your operational costs from client pass throughs. Otherwise, you're scaring yourself with numbers that aren't really yours. Your true burn rate is what it costs to run your agency, not what it costs to run your client's projects through your bank account. Now, let's talk about calculating your runway. Once you know your daily burn rate, the next thing you can calculate is your runway, which is just another way of saying how many days can you survive? If the revenue stopped tomorrow, take what's in the bank. Divide the balance by your daily burn rate. That's your number. Now, I'm not here to do the math for you. Every business is completely different, but I do want you to sit with a concept because the concept is the thing that changes your thinking. If your runway is 90 days, you have options. You have time to pivot, you have time to prospect, to make strategic moves. If your runway is 12 days, you have a very different conversation with yourself and maybe with your bank. Knowing your runway in a downturn or honestly just knowing it period is the difference between a business owner and somebody who is just winging it and hoping for the best. And look, I have seen plenty of both. There's no shame in realizing you've been in the second category. The shame would be staying there. Okay, Melissa, why does this number change everything? Well, here's the part that I really want you to take away today. When you don't know your daily burn rate, every financial decision is a guess. When to hire, when to cut, when to take a lower margin client, because you need the cash, whether to say no, because you have the cushion. These are not intuition questions. These are math questions, and the math starts with a burn rate. My client from the confession at the top, once we sat down and ran the actual numbers, they realized they had more cushion that they thought not a lot more, but enough to stop panicking and start thinking. They used that thinking time to land a new client because they were calm enough to pitch well, and that is what Financial Clarity does. It doesn't just tell you where you stand, it just changes how you show up. Before I let you go, I want you to know what I tell my clients all the time. If you didn't know what daily burn rate was before this episode, you are an extremely good company. This is not something that gets taught in design school or in the early days of freelancing or anywhere in the creative world really. Most agency owners learn the hard way when a slow month turns into a scary month, or when a big client leaves and there's suddenly a hole in the floor. You are listening to this podcast, which means you are doing something different. You are choosing to get ahead of it and that matters. So no judgment. Just go find your number. This is a wrap on this episode of No Se Habla Taxes Your homework. Yes, I am giving you homework. I am A CPA and it's what we do is to calculate your daily burn rate this week, pull your last month of expenses, remove the pass throughs, divide by the days of the month. Write it down somewhere, you'll see it. Then divide your current cash by that number. That is your runway. And now you know if this episode was useful. Share it with another agency owner who's winging it. And if you've got a financial question you want me to dig into on a future episode, you can reach me at info@steadyhandaccounting.com. That's info@steadyhandaccounting.com. You can also find my contact details in the show notes. I'm Melissa Armstrong. Thanks for spending your time here. Now go look at your numbers. They're not as scary as you think. See ya.