Proactive cash burn tracking gives companies full visibility into cash flow health and the ability to spot cost pressures before they become constraints
Blaise Radley
Editorial Strategist
Workday
In early 2024, global aerospace manufacturer Boeing told investors it would burn billions more cash than planned, forcing leadership to revisit liquidity and financing decisions midyear. Production slowdowns and delayed aircraft deliveries pushed costs higher, while their anticipated cash inflows slipped, undoing forecasts that had looked solid just months earlier.
What makes Boeing’s situation notable isn’t just the size of the number but the speed at which cash assumptions unraveled once spending moved ahead of receipts. Even with scale, capital access, and sophisticated forecasting models, small timing shifts and limited visibility still translated into real liquidity pressure and cash flow management issues.
Deloitte’s Global Treasury Survey suggests the challenge is far from isolated: 58% of treasury leaders cite visibility into cash and financial risk as a top challenge, and just 18% say they have above-average forecasting capabilities. When cash visibility breaks down, spending outpaces income, which erodes liquidity and limits investment flexibility.
To avoid this problem, teams need a proactive process for calculating and tracking cash burn. When it’s treated as a priority, cash burn tracking becomes a valuable planning and forecasting tool that can help companies stay on top of spending and allocate resources intentionally toward high-impact initiatives.
Guide
More than half (58%) of treasury leaders say cash visibility is a top challenge.
Cash burn (or burn rate) measures how quickly an organization is using its available cash over a defined period of time. In practical terms, it reflects the gap between cash going out of the business and cash coming in. When that gap is negative, the company is “burning” cash to fund operations, investments, or growth initiatives.
This makes cash burn a critical indicator of liquidity and financial resilience. While income statements show profitability over an accounting period, cash burn focuses on timing and reality: how much cash is actually leaving the business, and how long current reserves can support ongoing activity. That distinction is what makes cash burn especially important during periods of growth, transformation, or uncertainty.
Although cash burn is often discussed alongside profitability and operating loss, these metrics answer different financial questions. Understanding the distinction helps prevent false signals and misinformed decisions.
A company can be profitable and burning cash if customers pay slowly or if the business is making significant upfront investments. Likewise, a company can report an operating loss while maintaining a stable cash position due to strong financing or deferred spending. Cash burn cuts through these differences by focusing on what ultimately sustains operations: available cash.
Organizations typically track cash burn when visibility and flexibility matter most. High-growth companies, for example, use it to track how quickly expansion initiatives are consuming resources. Established organizations monitor cash burn during major investments, restructuring, or market volatility to ensure company spending aligns with strategic priorities.
Monitored alongside forecasting and scenario planning, cash burn helps finance teams anticipate pressure points earlier and predict how today’s decisions shape future liquidity and financial health.
Calculating cash burn follows a sequence of steps that each builds on the last. By working through the process methodically—from selecting a time period to translating cash burn into runway—finance teams can move from a single data point to a more complete view of liquidity and spending pressure. Here are the seven steps to ensure you calculate burn rate correctly.
Cash burn is usually calculated on a monthly basis because it aligns with budgeting, forecasting, and performance review cycles. Using a consistent time period makes it easier to track trends and spot changes early. Quarterly views can be useful for higher-level planning, but monthly revenue and outgoing tracking offers more actionable insight.
Gross cash burn measures total cash spent during the period, without accounting for any cash inflows.
Formula: Gross Cash Burn = Total Cash Expenses During the Period
This includes cash expenses like payroll, rent, technology costs, and any other operating expenses. Non-cash items like depreciation and amortization should be excluded.
Example: During the month, an organization spends $850,000 on payroll, rent, software, and other operating costs. Its gross cash burn for the month is the same: $850,000.
Net cash burn accounts for both cash outflows and cash inflows, showing how the company’s cash position is actually changing.
Formula: Net Cash Burn = Cash Outflows – Cash Inflows
Cash inflows include things like customer payments, financing proceeds, or other sources of cash received. Net burn rate provides a clearer picture of liquidity and near-term sustainability.
Example: In the same month, the company collects $500,000 in cash from customers. Net cash burn is $350,000 ($850,000 in outflows minus their $500,000 in inflows).
Cash runway extends net cash burn by estimating how long current cash reserves will last if spending continues at the same pace.
Formula: Cash Runway = Available Cash ÷ Net Monthly Cash Burn
Runway helps finance teams assess urgency and make more informed decisions about hiring, investment timing, and cost controls.
Example: If the company has $4.2 million in available cash and a net monthly cash burn of $350,000, its cash runway is approximately 12 months.
Fixed cash burn includes recurring and relatively stable costs like salaries, leases, and long-term contracts. Variable cash burn includes discretionary or usage-based expenses like marketing spend or cloud services. Understanding both matters because variable burn can often be adjusted more quickly when conditions change.
Example: If most of the company’s $850,000 in monthly spending is fixed, reducing burn will require structural changes. If a large portion is variable, the company may have more near-term flexibility.
Calculating cash burn is only the starting point. Forecasting helps finance teams understand how burn may change as assumptions shift. Common approaches include:
Example: If the company plans to increase hiring or marketing spend, projected cash burn and runway can be recalculated to reflect those changes before decisions are finalized.
Even with a clear formula, cash burn can be misinterpreted if common issues aren’t accounted for. Finance teams often run into problems when:
Example: If customer payments slip from the end of one month into the beginning of the next, net cash burn for that month may appear higher than normal. Without context, that spike could prompt unnecessary concern, even though the underlying business performance hasn’t changed.
Calculated consistently, cash burn helps teams maintain financial discipline while still supporting agile growth.
Calculated consistently and interpreted in context, cash burn helps finance teams maintain financial discipline while still supporting growth strategy. It provides a clearer basis for trade-offs—between investment and liquidity, speed and flexibility—and strengthens the connection between day-to-day spending decisions and long-term strategy.
As organizations scale and operating environments become more dynamic, technology plays a critical role in making cash burn actionable. Modern financial management systems deliver critical capabilities for real-time visibility and automated tracking, including:
When cash burn is embedded into continuous planning efforts and supported by the right systems in this way, it becomes part of a broader finance transformation that enables faster cash flow insight, confident financial decision-making, and sustainable financial performance over time.
Unbalanced budgets lead to missed goals and lost opportunities. Achieve a 'just right' budget that motivates teams and protects your business by downloading this whitepaper and applying its probability-based approach.
Guide
Pressure for finance leaders to invest in AI is at an all-time high, but where are CFOs spending their technology budget? Read on to learn more about the potential impact of widespread AI implementation from 2,355 senior business executives.