How to Extend Your Cash Runway as an Emerging CPG Brand
Cash drives growth and risk in the fast-paced world of consumer packaged goods. As your brand expands, you may feel pressured to invest in production, marketing, and distribution, especially when you have top-notch competitors striving for market share. However, managing cash flow for growth means pushing just enough to perfectly balance spending and reserves. If you spend too slowly, you may lose momentum — spend too quickly, and you may burn through your funds before achieving success.
Fortunately, you don't have to sacrifice growth for the security of your cash runway extension. In this post, l discuss the clear, confident cash management strategies for CPG I learned while building the Balanced Business Group brand.
Understand Your Cash Burn Rate
Understanding the burn rate for CPG brands determines whether you survive or thrive. A measure of how quickly your business uses its cash reserves, it shows the flow of money in and out over time, revealing how long your cash will last before funds run out. Early on, high upfront costs may delay profitability, but tracking lets you scale more effectively.
Calculating Your Cash Burn Rate
Your cash burn rate shows how quickly you deplete the reserves of your cash runway extension. To calculate this, gather accurate, up-to-date information about your company finances and focus on these figures:
Current cash balance: Finding this amount is easy, but you need to stay on top of your accounting by entering and reconciling everything correctly for accuracy.
AP/AR: Accounts payable shows what you owe, while accounts receivable shows what others owe you.
Sales forecast: For a clear picture of how much you'll sell in the forecast period, communicate with suppliers and watch essential metrics, such as sell-through rates and product velocity.
Future expenses: During growth phases, you can't just use information from prior months and push it to the future. Instead, anticipate accurately by going through costs line by line to ensure you include everything.
Calculate your burn rate by subtracting your incoming cash from outflows. For example, if you start with $150,000, spend $60,000, and earn $30,000 in revenue, your burn rate is the net decrease of $30,000.
Your Burn Rate's Impact on Your Cash Runway
Once you know your burn rate, calculate your cash runway — the remaining time your current balance can last. Using my previous example, with a $30,000 burn rate and $120,000 in the bank, you have 4 months of cash runway extension.
Regularly track your burn rate with CPG finance reporting, and adjust your strategy if spending increases before challenging situations hit critical mass. Your long-term success depends on managing cash flow for growth and capital efficiency.
Optimize Spending to Reduce Burn Rate
Reducing costs doesn't mean cutting corners. I suggest optimizing spending to stretch cash without sacrificing growth and understanding your cash conversion cycle. Thin margins and intense competition require a careful balance, but staying lean lets you scale effectively.
Optimizing Costs
Strategic cost-cutting can reduce expenses without slowing growth, especially when you rely on budget to actual variance analysis for a complete picture. Use these cash management strategies for your CPG to streamline operations and eliminate waste while preserving what makes your brand unique.
Renegotiating Supplier Contracts
Start with your supply chain when looking for ways to cut costs. Renegotiating contracts can unlock savings through bulk discounts, extended payment terms, and lower minimum order quantities (MOQs).
Let me stop here and note that finding the right co-manufacturer who doesn't enforce large MOQs helps immensely. I've seen founders get stuck with years worth of inventory that takes multiple quarters to sell through, leaving their brands with little liquidity for investment.
Reducing Excess Inventory
Excess inventory drains cash and increases the risk of spoilage in the CPG sector. Improve demand planning, scale production properly, and collaborate with co-manufacturers to solve this issue. If you consistently overproduce, adjust your production cycles and sales forecasts and work with sales teams and retail markets to match supply with demand.
Streamlining Marketing and Sales
While marketing remains vital, I recommend strategic planning over hiring a sales team. Early on, you might handle much of the sales outreach yourself, but as your company grows, you might consider hiring experts with industry connections to secure shelf placement and boost sales. You can also leverage cost-effective digital tools such as targeted social media ads and influencer partnerships. Most of all, keep watch on marketing and financial metrics to see what works and what doesn't to better focus future ad buys.
Considering Operational Efficiency
I've found you can enhance operational efficiency by outsourcing tasks like making labels, automating production lines, or using emerging technology to reduce labor costs. For instance, you can automate accounting to monitor your financial situation closely and manage inventory with barcode technology.
Manage Accounts Payable and Receivable
Managing cash flow for growth with effective accounts payable and accounts receivable management helps you with extending the cash runway for CPG brands. By adjusting how and when you pay suppliers and how quickly collection happens, you can significantly improve cash flow. Even the AP/AR timing can provide the working capital you need for growth.
Extending the Cash Runway for CPG Brands With Optimization
Optimizing AP/AR processes can directly affect your cash burn rate. Delaying payments to suppliers lets you hold cash longer, while speeding up customer collections gives you immediate funds for reinvestment.
Consider these cash management strategies for CPG brands:
Negotiate longer payment terms with suppliers.
Use supplier payment programs.
Strengthen supplier relationships.
Offer customers early payment discounts.
Streamline invoicing.
Incentivize early payments.
Establish clear payment terms upfront.
Dealing With Late Payments
Late payments can hurt cash flow, so create a system to address them. Set automated reminders as due dates approach, and follow up with emails or calls. Enforce penalties for chronic late payers, and consider offering payment plans to recover partial amounts.
Scaling Smarter, Not Harder
Emerging CPG brands often feel tempted to chase rapid growth, but growth at all costs can burn through your cash reserves and create financial risk. Scaling smarter — not harder — means making strategic decisions that balance expansion and cash management. In cash-constrained settings, focus on investments with the highest returns on investment to protect your cash runway and achieve sustainable growth without overextending your business.
Scaling Operations Without Burning Too Much Cash
Efficient scaling requires focusing resources for maximum impact. Instead of doing everything at once, aim for incremental growth with enough cash flow to support every step.
Focus on High-Margin Products: Concentrate on your most profitable products. High-margin items generate more revenue and help cover operational costs. Doubling down on your bestsellers with the highest profit margins can drive growth without matching increases in expenses. Lean product lines tend to maintain stronger cash flow while scaling.
Streamline Production and Operations: Optimize production and supply chains to reduce costs and improve profits. Leaner operations lower your overhead and free up cash for growth investments.
Manage Trade Spend Wisely: Control your trade spend by focusing on promotions, discounts, and slotting fees that deliver real value. Identify and target effective promotional methods to avoid eroding profits on poorly executed deals.
Prioritizing Investments and Spending
Invest in channels with proven ROI, prioritizing KPIs like customer acquisition costs and lifetime value in your evaluations. A focus on repeat customers enables cost-effective growth and builds brand loyalty. Next, drive sell-through with strategies like enhanced package designs, product demos, and point-of-sale displays. Finally, leverage strategic partnerships by building strong relationships with co-manufacturers, distributors, and retailers to reduce your need for a large internal sales team.
Scaling Smarter in the CPG Space
Many successful CPG brands scale efficiently by focusing on high-margin products and streamlined production. Small brands can grow rapidly by launching just one or two core products with high ROI, minimizing manufacturing complexity and overhead costs. By simplifying their production processes, they can scale faster than overextended competitors with larger product lines.
Strategic Cash Management for Long-Term Success
Balancing cash burn with a healthy cash runway challenges almost every emerging CPG brand. Taking a proactive approach with proven cash management strategies for CPG helps extend your runway and maintain your financial health. Balanced Business Group specializes in helping specialty food and beverage businesses navigate the complexities of scaling while ensuring efficient cash management.
If you're ready to take control of your cash runway extension and scale your brand with confidence, explore the BBG website for actionable advice and contact us to learn more about the personalized services we offer CPG businesses. I can schedule a consultation to show you how BBG can help drive your brand's long-term success.
Author Name: Pedro Noyola
Author Bio: Pedro Noyola is the CEO of Balanced Business Group (BBG), a company dedicated to helping Founders in the CPG food and beverage industry gain financial confidence. At BBG, Pedro combines traditional accounting with tailored financial guidance, providing industry-specific insights to ensure sustainable growth for passionate food entrepreneurs. He is also an angel investor and a mentor to emerging CPG brands via SKU and TIG Collective. Pedro’s career spans leadership roles at FluentStream, where he helped the company achieve recognition as one of the Fastest Growing Companies in America by Inc., and Telogis, where he was part of a team that grew the company’s recurring revenue from $50 million to $1.2 billion in under five years.
Pedro holds a BA and MPA from The University of Texas at Austin and an MBA from Harvard Business School. He is an active member of the Young Presidents Organization, continually seeking growth in both leadership and learning. Outside of work, Pedro enjoys family time and outdoor activities, drawing personal fulfillment from his roles as a husband and father.
