A lower burn rate has an upfront price.
Cost reductions can extend runway, but severance, contract termination and implementation expenses use cash first. Comparing the old and new monthly rate without deducting those costs overstates the benefit.
The relevant question is the net time purchased. This model holds collections constant and assumes savings begin immediately after the implementation cost is paid. A delayed saving belongs in a monthly cash forecast.
The formula, made clear.
- Change cost
- An immediate cash payment, not an amortized accounting expense.
- Extension
- New runway less old runway, measured in months.
Put the numbers in context.
$900,000.00 at $75,000.00 burn lasts 12 months. Paying $60,000.00 to save $15,000.00 per month leaves 14 months: an extension of two months.
| Input | Example value |
|---|---|
| Available cash | $900,000.00 |
| Current monthly net burn | $75,000.00 |
| Monthly cash savings | $15,000.00 |
| One-off change cost | $60,000.00 |
| Runway after the change | 14 months |
What this calculation assumes
Savings are immediate, permanent and do not reduce cash collections. No financing or later exceptional payments. Savings equal to or above burn mean no steady-state depletion, not unlimited financial security.
What to consider next.
Check whether revenue or execution would change after the reduction. Model delayed savings and hiring changes in a cash forecast.
How we approach financial models →