In a challenging fundraising environment where venture rounds are harder to secure and valuations are under pressure, early-stage startups face an ongoing need to extend their cash runway. A longer runway means more time to hit critical milestones, weather market turbulence, and ultimately reach the next fundraising round in a position of strength.
An experienced Fractional CFO can make a big difference by helping your startup optimize resources and make smart adjustments to maintain momentum. Let’s explore how a Fractional CFO can strategically extend a startup’s runway, including a couple of real-life examples from Burkland’s expert team.
1. Optimizing Pricing & Payment Models
One pivotal way a Fractional CFO can stretch a startup’s runway is by rethinking pricing and payment models. For example, take the journey of Segment, which went on to a $3.2 billion exit. On the recent 100th episode of our Startup Success podcast, we sat down with Peter Reinhardt, co-founder and CEO of Segment, and Jeff Burkland, founder and CEO of Burkland. Jeff served as Segment’s Fractional CFO during a critical phase, bringing financial acumen that helped Segment navigate growth and optimize its cash flow.
One of Jeff’s early contributions was developing a financial model that showed how switching from monthly payments to annual prepayments would significantly reduce Segment’s burn rate. This shift gave the company an upfront cash buffer, extending its runway and providing more room to scale. Through creative payment restructuring, Jeff highlighted how a Fractional CFO can uncover hidden opportunities to stabilize finances without heavy cost-cutting.
2. Strategically Cutting Expenses
When financial pressure is high, reducing expenses often becomes essential. Early in the COVID-19 pandemic, a Burkland CFO worked with a startup client to take an innovative, methodical approach to expenses. The CFO and client categorized every line item into two buckets: “needed now” and “needed later.” This exercise led to the immediate cessation of “needed later” expenses, often including personnel hired for projects set months into the future.
Once these first cuts were identified, the CFO repeated the process within the “needed now” bucket, this time distinguishing between essential spending on personnel and marketing. The strategic filtering of expenses quickly identified the minimum resources required for survival, allowing the company to withstand the challenging economic downturn ahead. There are numerous other ways to identify cost-savings, but this type of disciplined approach enabled the startup to survive and positioned it for a highly successful exit a few years later.
Other Ways Fractional CFOs Extend Runway
Beyond these specific examples, Fractional CFOs offer a range of strategies and tactics to maximize runway. Here are a few other ways they can help:
- Restructuring Debt and Financing
Example: A biotech startup’s Fractional CFO renegotiates its existing debt with a lower interest rate, a longer repayment period, or extending the interest-only period (i.e. delaying the date by which you must begin to pay down the principal), thereby reducing cash flow. - Implementing Flexible Budgeting
Example: Instead of a rigid annual budget, a Fractional CFO introduces a rolling budget at a consumer goods startup, allowing monthly reviews and adjustments, which helps the team adapt quickly to changing market conditions and stay cash-efficient. - Improving Profit Margins
Example: A Fractional CFO identifies that a food delivery startup’s margin is low on certain delivery routes, so they adjust pricing for longer-distance orders, raising profitability on each delivery and lowering cash burn. - Negotiating Payment Terms with Vendors
Example: A hardware startup’s Fractional CFO negotiates a 90-day payment term with their main supplier instead of 30 days, reducing working capital needs and giving the startup more time to generate revenue before payments are due. - Delaying or Phasing Out Non-Core Initiatives
Example: A Fractional CFO at a fitness tech startup helps the team identify that an R&D project for a future wearable can be delayed to focus on the flagship product, freeing up funds for critical current expenses. - Reducing Overhead Costs
Example: A Fractional CFO advises an eCommerce startup to downsize office space and move partially remote, reducing rental costs and freeing up capital for customer acquisition instead. Beware, though, of “hidden” costs of a more distributed team, including potentially increased travel and administrative overhead to register employees in different locales/states. - Scenario Planning via Financial Modeling
Example: At the height of the COVID-19 pandemic, a Fractional CFO for a SaaS company augmented the existing financial model to include best, base, and worst-case scenarios for various outcomes, allowing the CEO and management team to consider the financial impacts of potential strategic changes. Despite the highly uncertain times, understanding the range of potential outcomes provided the executive team a sense of buy-in and control to help them determine both the nature and depth of cuts that were necessary.
Related Resources
Preserving capital is a competitive advantage for startups, and an experienced Fractional CFO is the strategic partner you need to do it right. Contact Burkland to learn more about our Fractional CFO services and how we can help you maximize your runway and achieve lasting success.