Net Burn vs Cash Out Date

Net Burn and Cash Out Date both measure aspects of a company's cash management, but they serve different purposes in financial planning. Net Burn represents the rate at which a company is consuming its cash reserves each month, calculated as the difference between cash outflows and cash inflows during a specific period, typically expressed as a monthly figure. Cash Out Date (sometimes called Runway or Zero Cash Date) projects when a company will exhaust its available cash reserves if the current Net Burn rate continues unchanged, effectively translating the burn rate into a specific point in time when additional funding will be required.

A technology startup should focus on Net Burn when making immediate operational decisions or evaluating the impact of specific initiatives. For example, if a software company is considering hiring five new developers at $120,000 each annually, they can easily calculate that this would increase their Net Burn by $50,000 monthly and determine if current growth justifies this expense. Conversely, the same company would emphasize Cash Out Date when planning fundraising timelines or making strategic decisions about growth versus conservation. If the company has $4 million in the bank with a Net Burn of $500,000 monthly, their Cash Out Date is approximately eight months away, signalling that fundraising efforts should begin within the next two to three months to ensure adequate time for closing a new investment round. While Net Burn provides a snapshot of current cash management, Cash Out Date transforms this information into a strategic timeline for major business decisions.