Zero cash date – an introduction
It’s important to know how long the cash in your business will last. Using financial forecasting to understand when cash is likely to run out (your zero cash date) is vital for businesses, particularly fast-growing tech, SaaS and e-commerce companies with negative cashflow.
Understanding your zero cash date enables businesses to make decisions around investment or cost cutting. In turn, this means cash burn rate is always managed and controlled.
What is zero cash date?
Also known as cash out date, it’s the date a business will run out of cash if nothing changes. It's intrinsically linked to burn rate and cash runway.
Why is zero cash date important?
Businesses need cash to operate. Knowing the zero cash date in advance gives businesses the time to put plans in place and, crucially, take action to avoid running out of cash.
How can you extend the zero cash date?
Ultimately it’s straightforward maths. If you know when the cash is going to run out, you need to either inject more through investment or cut costs to make the cash last longer. Conserving cash and extending your runway in practice is much more complex. However, knowing your burn rate, cash runway and zero cash date are fundamental to taking action.
Zero cash date and costs
Reducing how much your business is spending can extend the zero cash date. Consider:
- re-evaluating operating expenditure
- prioritising necessary spend
- not upgrading to new equipment
- reviewing and stopping discretionary spending
- cancelling subscriptions no longer needed
- negotiating supplier discounts, and
- extending supplier payment terms.
Zero cash date and revenue
Getting more cash into the business is another way of delaying the zero cash date. Consider:
- whether you could incentivise customers to pay sooner, for example through pre-orders or discounted advanced annual payments instead of higher monthly payments, and
- if any of your products or services aren’t generating immediate cash, it might be time to stop those and concentrate on more cash generative elements of your business.
Zero cash date and funding
Your larger investment rounds (Series A, Series B etc.) will be driven by your zero cash date but there are shorter-term finance options available to extend your runway, that could give you time to grow more recurring revenue and get a bigger valuation.
- For SaaS businesses there are products in the market, such as revenue based finance, that will advance debt funding based on your recurring revenue.
- Product businesses can also find funding secured against inventory.
- Submitting your R&D tax credit as soon as possible.
- Government grants, particularly for development businesses, are also worth considering.
The cash zero date will change each month depending on actual cash burn and cash balance, rather than forecasted numbers. If you’re calculating it far enough in advance, you should have enough time to take appropriate actions.
What does zero cash date look like?
How do you calculate zero cash date?
The formula to calculate zero cash date is:
Zero cash date = Today's date + runway (months)
Zero cash date worked example
Assuming today's date is 1 January 202X, and the cash runway is 10 months, the zero cash date would be 1 October 202X, calculated like this:
Zero cash date = 1 January 202X + 10 months = 31 October 202X
Zero cash date is arguably one of the most important metrics and dates to be aware of in any fast-growth business that's burning cash. It helps a business to plan accordingly; driving changes in costs, revenue, debt and investment to make sure there’s sufficient cash available in the business.