Cash Burn Rate = The shortfall or surplus of cash that you need to operate the business
The goal with this calculator is to calculate how much cash you will need to survive a downturn in sales/revenue e.g. during a crisis such as COVID-19. Businesses then need to use this as a starting point to deploy financial and business strategies to either help improve their current position or to ensure they can survive an extended period of reduced sales/revenue.
Fill in the boxes at the bottom of the calculator below then edit the Monthly cash revenue, Monthly cash expense and Cash on hand dials to see how a downturn or upturn can affect your cash burn and overall survivial months.
In a normal operating environment, the cash burn rate over say a 3 month period is calculated at:
Monthly Burn Rate = (Cash balance beginning of period – Cash balance end of period) / # of months in period
E.g. Cash at start of period = $100,000. Cash at end of period = $80,000, therefore cash burn rate is $20,000 over a 3 month period or $20,000/3 per month
However in a crisis or a disaster situation where industry or our firms demand has suddenly contracted then the old cash burn rate is no longer relevant.
We need to manually make some assumptions based on worst and best case scenarios. We suggest you calculate your new estimated cash burn by calculating your estimated revenue and expense levels until things get back to normal. If you are negative ie burning cash each month you will need to look for more cash either through collecting debtors, spreading creditors, selling inventory or funding through external means.