Cash reduction over an observed interval
Net burn measures how much cash fell per month: opening cash minus closing cash, divided by elapsed months. It is a cash movement calculation, not an income statement. The formula assumes the two balances are comparable and that the chosen interval represents the operating pace you want to describe.
A nine-month cash movement
Cash falling from $640,000 to $415,000 is a $225,000 reduction. Across nine months, net burn is $25,000 per month. That number includes the net effect of revenue, spending, financing receipts, and timing differences that passed through the bank balance.
Choose dates that describe operations
Pick actual balance-sheet dates, not a remembered high point and a later low point. A tax payment, annual insurance bill, customer prepayment, or fundraising close can distort a short interval. A three- or six-month trailing view often describes the current operating trend better than one unusual month.
Burn, spending, and runway answer different questions
Burn is different from runway. Burn describes what happened; runway projects how long present cash can support future net outflow. Gross spending is also different: a company can spend $100,000 and burn only $25,000 if receipts cover the rest.
Reconcile the balance change before presenting it
Reconcile the change in cash before using it for board or hiring decisions. Exclude a financing event if the question is operating burn, and separate restricted cash if it cannot fund normal operations. The useful result is an explainable monthly bridge, not just a headline rate.
Build the cash bridge behind the average
A cash bridge makes the rate auditable. Start with opening cash, then list collections, payroll, suppliers, tax, capital expenditure, debt movements, and financing to arrive at closing cash. The bridge exposes whether a lower burn came from better operating performance or simply from delaying payment. Track committed but unpaid obligations alongside the bank balance; cash can look healthy shortly before payroll, inventory, or a tax payment is due. That is especially important for businesses with uneven collections.
Show the monthly series beside the average. A stable-looking nine-month rate can conceal a recent acceleration that requires a different operating response than a temporary one-time cash movement.
Month-end cash can be flattered by a delayed supplier payment or a customer collection received early. Note those timing items next to the average, then examine the next few weeks of due dates. The distinction matters most when a hiring or spending decision depends on apparent improvement.
Keep a separate note for non-operating cash movements such as a security deposit returned or equipment sold. They are real cash, but they do not describe the recurring cost base.
The nine-month result should be reconciled to a bridge before it is called operating performance. Beginning with $640,000 and ending with $415,000 explains a $225,000 reduction, but the bridge can contain collections, payroll, supplier payments, tax, equipment purchases, debt movements, and financing. If a $100,000 financing receipt occurred during the interval, the underlying operating cash use may be greater than the net $25,000 monthly result suggests. If a supplier payment was delayed, the opposite illusion can occur. List the movements rather than asking a single average to explain them.
A trailing series can distinguish a trend from a calendar event. Assume the last three monthly changes were negative $18,000, negative $27,000, and negative $30,000. Their average is $25,000, yet the recent direction is worsening. A separate month with a $60,000 annual insurance payment may raise a six-month average without indicating a recurring pace. Show both the selected average and the monthly points, with one-off items labelled, before changing hiring or procurement plans.
Net burn has a strict boundary: it observes cash, not profit. A company can show accounting profit while receivables grow and cash falls, or accounting loss while a customer pays annually in advance and cash rises. Restricted deposits and cash held for a specific delivery are also not freely available operating funds. The calculator is useful when the opening and closing balances have the same scope and the interval is known. A board forecast, covenant test, or solvency conclusion needs a dated cash schedule and the obligations due against it.
Choose the interval in advance when possible. Selecting the start after a cash collection and the end after a tax payment can manufacture an alarming rate, while reversing the selection can conceal a problem. A calendar-month series or a consistently defined trailing three-month period makes comparisons less vulnerable to that choice. Keep opening and closing statement dates, excluded financing, restricted balances, and material one-off payments in the workpaper. That discipline makes a later change in burn explainable and prevents a cash bridge from being silently redefined for a presentation.
Cash balances should be converted to one currency and scope before comparison. A foreign-currency account can change in reported value because of exchange movement even if no operating cash was used, and a newly consolidated account can create an artificial step. Note those changes outside the operating bridge. The method is deliberately simple: it measures the difference between comparable balances. It does not replace treasury controls, accounting close, or a review of liabilities that have not yet left the bank.