If your business has been hit by an economic downturn, rising costs, or a sudden drop in revenue, you need a clear read on your numbers. A cash runway and burn rate calculation is the fastest way to see exactly where you stand. These two numbers show how much cash you have left and how quickly you’re using it, so you can make decisions based on real figures instead of guesswork.
In tough times, it’s natural to want to revisit your business model, operations, processes, and people to work out how best to move forward.
But before you do any of that, focus on your cash position first. A clear read on your cash runway and burn rate means every other decision, from hiring to spending, is grounded in what your business can actually afford.
Trent Mclaren, Weel’s Head of Accounting, shared the key metrics worth reviewing when times get tough.
How much have you got in the bank? (cash now or cash available)
Knowing how much cash you can access right now matters at any time, and even more so in tough times. Forget the debtor who still owes you for an invoice sent last month. This is about what’s already in the bank, or available the moment you need it. That could be a business savings account, an unused line of credit, or funds set aside for tax.
What’s your MRR (Monthly Recurring Revenue)?
This one won’t apply to every business, but if you sell subscriptions or a regular monthly service, know your MRR. It tells you whether money coming in each month covers your expenses. Track new sales, but also churn (lost customers), since both move your MRR and may mean adjusting your monthly budget. A small rise in churn can erode months of new sales growth, so review it as closely as revenue itself.
What’s your cash burn rate? (how much cash could you be burning each month or week)
Your ‘cash burn rate’ is the rate your business uses up its cash reserves. Once you know your burn rate, you can decide what to do to reduce it. If you’re spending more than you’re earning each month, it’s time to act.
For example, to work out your burn rate for the last quarter, find the difference between your cash balance at the start and end of the period. If you began the quarter with $350,000 and finished with $290,000, that’s a $60,000 difference. Divide by three months and your monthly burn rate is $20,000.
How long is your cash runway? (how long will the cash will last)
Running out of cash is a daunting prospect. Working out how long your kitty will last gives you your ‘cash runway’. Divide the amount in your kitty by your burn rate to monitor overspending and profitability. If your runway is getting shorter, cut spending or generate revenue sooner rather than later.
For example, with $200,000 left and a burn rate of $50,000 a month, the business has a 4-month runway.
You might need to bootstrap for a while
Get creative when things are tight. Look at what you can personally put in, whether that’s your own money or your own time, until the business is self-sustaining again. You might need some hard conversations: with customers about payment terms, suppliers about extending credit, and your team about workload. Keep those conversations open and regular, rather than saving them for a crisis.
Get a complete view of your expenses
A complete, real-time view of your spending shows exactly what’s going on in your business. Weel gives you real-time visibility of every transaction and full control of business spending. Spot where cash is leaking before it becomes a bigger problem.
Why this matters more when conditions are tough
Economic conditions shift fast. The Reserve Bank of Australia tracks these trends closely, including the rising costs and tighter cash flow that put pressure on cash runway and burn rate. When conditions tighten, the businesses that stay ahead are the ones already watching their numbers.
The ones that don’t are left scrambling to calculate it for the first time when the bank balance looks low. Keeping an eye on these numbers isn’t about panic. It’s about staying ahead of decisions before they’re forced on you.
How often should you check your numbers?
In good times, checking your cash runway and burn rate every quarter is often enough. In tough times, move to monthly, or even weekly if your runway is under six months. The businesses that recover fastest from a downturn are usually the ones that caught the warning signs early. The ones that wait for the bank balance to force the conversation end up playing catch-up.
Try Weel free for 14 days. Book a demo and get a complete, real-time view of your cash position.
