Revenue Leakage, Runway, and Burn Rate: What In-House Legal Needs to Know

Legal teams are used to being scrappy and resourceful – always looking for ways to do more with less. But what happens when the economy takes a turn for the worse, as we’re seeing today? If you’re like the majority of businesses, the company is feeling the squeeze, and everyone is looking to legal for help. 

Revenue leakage, elongation of company runway, and controlling burn rate are all terms that you need to become familiar with. Here's a quick rundown of each term and how legal can help:

Revenue Leakage

Revenue Leakage: This is money your company should be making but isn't. It can be caused by things like inefficiencies in your sales process, discounts that are too high, or even fraud.

Legal plays a vital role in protecting its bottom line from revenue leakage. One of the most important things that in-house legal teams can do to protect a company's revenue is to carefully review all contracts before they are signed. This includes both new contracts and renewals of existing contracts. All too often, companies sign contracts without fully understanding the terms or realizing that they could have negotiated for better terms. As a result, they end up paying more than they should or agreeing to terms that are not in their best interest.

Elongation of Company Runway

Elongation of Company Runway: This is how long your company can continue to operate at its current burn rate. If you can lengthen your runway, it gives you more time to achieve profitability or raise additional funds.

When a company faces hard times, one of the first things they do is cut costs. Legal can help save the company money by managing contracts more effectively. Most legal agreements have more "wiggle room" than non-legal staffers suspect and finding those cost-saving and revenue-boosting opportunities are some of the best services a legal team can provide during difficult economic conditions. 

By taking a good hard look at your contract portfolio, your legal team can flag areas the business can cut costs without necessarily cutting employee headcount. Learn more about how legal and finance teams can partner to cut costs in this guide. 

Burn Rate 

Burn Rate: This is the rate at which your company is spending money. A high burn rate can be dangerous because it means that you are burning through cash quickly and may not have enough to keep going in the long run.

In-house legal teams play a vital role in helping companies manage their burn rate during tough economic times. By proactively reviewing and managing contracts, negotiating more favorable terms with vendors and suppliers, and identifying areas where cost savings can be achieved, in-house legal teams can help companies keep their spending under control and weather the storm during difficult economic periods.

CLM is Your Best Friend During Hard Economic Times  

Contract lifecycle management (CLM) software helps companies keep track of their contractual obligations and spot potential problem areas before they become costly mistakes. For example, if a company fails to renew a contract on time, it could be liable for damages. Or if a company signs a contract with an unfavorable clause, it could be stuck with those terms for the duration of the agreement.

The right CLM solution helps companies save money by automating some of the tasks associated with contract management, such as creating and sending reminders for contract renewals and payments. CLM also gives the legal team access to reporting features that can help track spending on vendor contracts and identify areas where they are overpaying.

As an in-house legal team, it is important to have the company’s bottom line as a priority. By understanding these key concepts – and how the legal team can help – you will be better prepared to ensure your company weathers the storm.