Zero Cash Date: What It Is And How To Calculate It

Mandi Rogers
5 min read
Zero Cash Date: What It Is And How To Calculate It

The zero cash date refers to the day a company's cash balance reaches zero. While it’s a bit alarming to know when your company will be flat broke, it’s a helpful, critical metric to track and calculate, especially in the early days of a startup’s life. Knowing when you will hit cash flow problems ahead of time allows you to set up barricades before it happens and implement a plan for cash flow-positive operations.

Preventive measures can mean extra funding, budgeting changes, and a myriad of other options depending on the state of your business.

In this blog, we’ll go over the details of a zero cash date and how to calculate it.

What Is A Zero Cash Date?

As stated above, a cash zero date is a day on which a company has no cash on hand. Various factors lead to cash-out dates, such as expenses exceeding revenues, a delay in payments, or a lack of access to credit. 

A cash zero date can cause concern and indicate financial instability. However, it is not always bad — sometimes, companies need to temporarily use their cash to invest in long-term projects that will pay off down the line. Ultimately, it is up to the company's management to decide whether or not a cash zero date is a cause for worry.

How Is It Different From Runway?

Runway is the number of months a company has before it reaches the cash-out date. Runway, like cash-out dates, are projections based on current and past finances. Knowing runway makes it easier for financial teams to adjust monthly budgets to keep the company from hitting the cash-out date. 

Why Is It Important To Know Your Zero Cash Date?

Companies need to know when they will run out of cash if they want to stop it from happening. Calculating your zero cash date determines how quickly you need to raise more funding, open a line of credit, or apply for a business loan. 

Investors often want to know when your company will need additional funding before problems arise – they are a part of your team and want the company to succeed. Clear communication is a primary foundation for good investor relationships, which includes letting them in on possible money problems.

How To Calculate Your Zero Cash Date

The equation is simple. Take your cash balance and divide it by your burn rate. This will give you your runway; the last day on your runway is the cash-out date. 

There are two methods used to calculate burn rate. You subtract your ending balance from your starting balance and then divide it by the number of months since you checked your beginning balance.

Example: Company X has a balance of $500,000 in January. In March, its ending balance was $250,000. It’s been three months since company X checked its beginning balance. 

$500,000 - $250,000/3

$250,000 ÷ 3 = $83.3k per month

Companies with consistent revenue and payments have a more accurate burn rate calculation than companies that fluctuate. That’s due to each month accurately reflecting how much money the company makes and uses through sales and operating expenses

Companies that plan on making a large purchase or investment or are consistently hiring won’t have actual burn rates without cash projections.

For example, a SaaS subscription company that gets paid yearly will show one month with high revenue compared to the rest of the year. Compare this to a company with typical sales; say, clients who pay at purchase. Companies with these types of sales can use the past three or six months of cash balances to calculate burn rates with precision.

3 Tips To Extend Your Zero Cash Date

Zero cash dates aren’t permanent and neither is your burn rate. Monitoring these two metrics consistently is the only way to make these changes ahead of time and extend your runway before it's too late. 

To make your cash last longer, consider:

  • Reevaluating and streamlining expense approval processes
  • Negotiating payment or loan terms — either reducing interest or lowering monthly payments
  • Evaluating  monthly overhead expenses and cutting out what isn’t vital to your day-to-day operations

Monitoring Zero Cash Date with Zeni

At Zeni, our dashboard calculates burn rate automatically monthly, quarterly, or yearly. However, suppose your startup does not have consistent revenue like the example above. In that case, we highly suggest taking advantage of our CFO services so that the Zeni finance team can take a deeper dive into finances and create a cash flow projection model and financial plan specific to your startup’s needs. 

Get started using Zeni today! 

For more tips on reducing your burn rate and extending your cash zero date, read these articles: 

Extending Your Startup’s Runway

How To Reduce Your Cash Burn Rate: 8 Tips For Startups

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