Three Numbers Before Anything Else

Every page of the pack answers something. Three of those answers decide whether this month needs a decision from you, and everything else is there for the months that do.

Those three are the cash sitting at the bank, the amount that left the account net over the month, and the count of months between the two. The last one is the first two divided.

So this lesson says which page answers which question, then hands over that division and one sentence to carry it around in.

Which page answers what

Three statements turn up in almost every monthly pack. A securities regulator wrote the plainest version of what each one is for, in language aimed at readers who are not accountants.

The third one splits three ways, and the split separates a bad trading month from a month that bought a van. Operating is the trading. Investing is what was bought or sold that lasts. Financing is money raised or paid back.

The division nobody writes down

Net burn is what left the account across the month once everything coming in has been counted against it. Runway is cash at bank divided by net burn, and it is a count of months rather than a plan.

Both figures are already on the page. One sits on the balance sheet, the other in the cash flow statement.

Move both handles to the figures on your own page and read the month back.

Drag either handle and the count moves the way you expect. The size of the move is what catches people out. A small change in what leaves every month beats a one-off saving of the same size.

Say it over your own page

That sentence holds in a board meeting, on a call with your finance department, or alone at a desk. It names two figures rather than borrowing a formula, so it survives a change of definition.

Nobody has defined the word

No accounting standard defines a burn rate at all. A securities regulator asks the companies that publish one to say what they mean by it, which is not a question anybody asks about a term with a settled meaning.

Across Europe a figure of that kind counts as an alternative performance measure. The company defines it, labels it so a reader knows what it covers, and ties it back to a line in the accounts. Pick gross or net, then hold the choice.

The three you write down

Read the same three every month and the fourth month says something the first three could not. Twelve is a horizon worth knowing, because standards ask management to look at least that far ahead when judging whether a business can keep trading, and they call twelve a floor.

Nothing there has been thrown away. The report is still on the desk, waiting for a month where these three readings say something moved.

• Cash at bank on the last day of the month, taken from your accounting app or from the statement itself.

• Net burn for the month that closed, with any annual payment inside it flagged.

• The months between those two figures, written somewhere you will meet it again in thirty days.

One month is a reading and never a forecast. A single annual payment landing inside the month you measured pulls the division out of shape, and the honest handling is a note beside the figure.