Tracking expenses by the day and month is critical to estimating your runway as a startup. Unfortunately, scientists are not fully trained to manage finances in a lab. In academia, most of operational duties are handled by the university, and therefore, scientists take them for granted. So when it comes time to running a company–where you have to think about taxes, lawyers, accountants, and a bucket full of other operational duties–mistakes are common.
Therefore, we’d like to walk you through our operations to help you efficiently run your startup. If you’re new to this area, please learn from our experiences.
First a few definitions:
- Runway – the amount of time you have left until you run out of money and everyone has to find a new job or work for free
- Burn rate – the average spend per month
- Profit and Loss – a monthly financial report of your income and expenses
At Perlstein Lab, we try to be lean. This means hiring HappiLabs to minimize spending on lab supplies & equipment, utilizing services through Science Exchange, hacking solutions and not buying new things, and paying our bills on time. We’ve been operating for 9.5 months and have a reliable estimate for our burn rate now and in the future. With payroll, lab supplies, the $157 for our storage locker, and rent at @QB3 (among other things), we spend an average of $71,187.48 per month (the featured graph shows our burn rate only for lab supplies and equipment).
Calculating and optimizing the burn rate is not easy. Here are a few tips:
- Set 2-3 hours aside every week to organize receipts, reconcile invoices, and analyze expenses. Do this now and you’ll thank yourself later.
- Use QuickBooks online to manage it and study your Profit and Loss report.
- Whatever your burn rate is, add about 10% for unanticipated expenses, such as broken equipment, waste disposal fees, or new software because Excel just won’t cut it anymore.
If you’re a founder, never undervalue your time. If you can pay someone else to do it, pay them to do it so you can focus on your science. Spending time on the phone with Fisher’s customer service is not going to lead to the next round of funding or an acquisition. Generating data and meeting investors will!
