NEXUS MANAGEMENT EDUCATION

Finance and Financial Management for Entrepreneurs

Task for Founders
Task 1: Cost Classification

This exercise will help you understand the cost structure of your business, identify areas of potential cost
reduction, and make informed decisions about resource allocation and pricing strategies.

• Outline your business process/operations/activities end-to-end and create a flowchart that

visually represents the sequence of activities.

• Identify and list the cost/expenses associated with each activity in your business process.

• Analyze and determine which costs remain constant regardless of the level of activity (fixed
costs) and which costs change in proportion to the level of activity (variable costs). Classify the
costs into fixed costs or variable costs based on their nature and behavior.

• Document your findings and present your flowchart, along with the associated costs categorized
as fixed or variable, in a clear and organized manner in a spreadsheet.

Task 2 : Cash Burn Rate Computation

This exercise will give you insights into the financial health of your startup and the rate at which cash is
being used. Understanding the cash burn rate is crucial for managing finances, planning for future funding
needs, and ensuring the sustainability of your business.

• Analyze the average monthly cash burn rate. Is it a positive or negative value? What does this
indicate about the cash flow of your business?
• Based on the average monthly cash burn rate, estimate how many months your business can
continue operating before depleting its cash reserves.
• Reflect on the results and consider the implications for your business. Are there any areas where
you could potentially reduce expenses or improve cash flow to extend the runway?

Finance and Financial Management for Entrepreneurs

Hint:

• If You do not have Financial Data for your business, you can make assumptions
• Create a table in a spreadsheet with columns for the month, opening cash balance, closing cash
balance, and net cash flow.
• Calculate the net cash flow for each month by subtracting the opening cash balance from the
closing cash balance.
• Calculate Average Monthly Cash Burn Rate
• For example Add up the net cash flow for the three months and divide it by three to obtain the
average monthly cash burn rate.

Finance and Financial Management for Entrepreneurs