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Colour Accounting refresher – Cash burn calculation

26/04/2018

Cash burn is an estimate of how fast the cash in a business is being used to meet operating expenditure.


It is calculated as a 'number of months' using the following formula:

Cash & Deposits

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((Operating expenses + interest + tax) – non-cash expenses) / 12 months

The cash burn figure can be compared with the current bank balance to give managers/owners a sense of urgency in regard to potential cashflow issues. 

A cash burn monthly figure that is less than 1 could indicate the business may face significant cashflow pressure within 30 days, if sales are not quickly turned into cash.

Insights from Justin Martin, Colour Accounting Facilitator