How To Calculate Cash Burn in FinancialForce | Arithmix

Calculating cash burn is an important aspect of financial management for any business. It helps you understand how much money your company is spending each month and how quickly you are using up your available cash reserves. In this article, we will discuss what cash burn is, when it is valuable to calculate cash burn, and how to calculate it in FinancialForce.

What Is Cash Burn?

Cash burn is the rate at which a company is spending its cash reserves. It is calculated by subtracting the total cash outflows from the total cash inflows over a specific period of time. Cash burn is an important metric for startups and other businesses that are not yet profitable because it helps them understand how much time they have before they run out of cash.

For example, if a company has $500,000 in cash reserves and is spending $50,000 per month, its cash burn rate is $50,000 per month. This means that the company has 10 months before it runs out of cash if it does not increase its cash inflows or decrease its cash outflows.

When Is It Valuable To Calculate Cash Burn?

Calculating cash burn is valuable for any business that wants to manage its cash flow effectively. It is especially important for startups and other businesses that are not yet profitable because they rely on their cash reserves to fund their operations. By calculating cash burn, these businesses can determine how much time they have before they need to raise additional funds or become profitable.

Calculating cash burn is also valuable for established businesses that are experiencing financial difficulties. By understanding their cash burn rate, these businesses can identify areas where they can reduce their expenses and improve their cash flow.

How to Calculate Cash Burn in FinancialForce

Calculating cash burn in FinancialForce is relatively simple. First, you need to gather your cash inflow and outflow data for a specific period of time. This data can be found in your financial statements or in FinancialForce's cash management module.

Next, you need to subtract your total cash outflows from your total cash inflows to determine your net cash flow for the period. Finally, divide your net cash flow by the number of months in the period to determine your monthly cash burn rate.

For example, if your net cash flow for the month of January was $100,000 and your net cash flow for the month of February was -$50,000, your total net cash flow for the two-month period would be $50,000. If you divide $50,000 by two, your monthly cash burn rate would be $25,000.

In conclusion, calculating cash burn is an important aspect of financial management for any business. By understanding your cash burn rate, you can make informed decisions about your cash flow and ensure that you have enough cash reserves to fund your operations. With FinancialForce, calculating cash burn is easy and straightforward.

How Do You Calculate Cash Burn in FinancialForce

FinancialForce itself isn’t naturally geared towards letting you calculate complex metrics like Cash Burn. As an alternative, teams typically use products like Arithmix to import data from FinancialForce and build out dashboards.

What is Arithmix?

Arithmix is the next generation spreadsheet - a collaborative, web-based platform for working with numbers that’s powerful yet easy to use. With Arithmix you can import data from systems like FinancialForce, combine it with data from other systems, and create calculations like Cash Burn.

In Arithmix, data is organized into Tables and referenced by name, not by cell location like a spreadsheet, simplifying calculation creation. Data and calculations can be shared with others and re-used like building blocks, vastly streamlining analysis, model building, and reporting in a highly scalable and easy to maintain platform. Data can be edited, categorized (by dimensions) and freely pivoted. Calculations are automatically copied across a dimension - eliminating copy and paste of formulas.

Arithmix is fully collaborative, giving your entire team access to your numbers and the ability to work together seamlessly.

Calculating Cash Burn in Arithmix

Calculating metrics like Cash Burn is simple in Arithmix. Once you've created your free account, you’ll be able to import your FinancialForce data, and use it to create natural language formulas for metrics like Cash Burn.

Arithmix is designed to give you the power to build any calculations you want on top of your FinancialForce data, while also being easy to use and collaborate on. You can share your dashboards with users inside and outside of your organisation, making it easy to empower your whole team.