1. What is Burn Rate?

Burn rate is a measure of how quickly a company is spending its capital, typically expressed as the amount of money the company loses each month. It's a key metric for startups and businesses to understand their financial runway.

2. How Burn Rate is Calculated

The basic burn rate formula is:

Where:

• Monthly Expenses — Total operating costs per month including salaries, rent, utilities, etc.

Explanation: Burn rate represents the negative cash flow of a business. A higher burn rate means the company is spending more money each month.

3. Importance of Burn Rate

Details: Understanding burn rate helps businesses determine how long they can operate before needing additional funding or becoming profitable. It's crucial for financial planning and investor communications.

4. Using the Calculator

Tips: Enter your total monthly expenses in dollars. The calculator will show your monthly burn rate, which is simply equal to your monthly expenses.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between gross and net burn rate?
A: Gross burn rate is total monthly expenses. Net burn rate accounts for revenue (Net Burn = Expenses - Revenue).

Q2: What is a good burn rate?
A: This depends on your business stage and funding. Generally, a lower burn rate extends your runway. Investors often prefer controlled burn rates.

Q3: How does burn rate relate to runway?
A: Runway = Cash Reserves / Burn Rate. It shows how many months you can operate at current spending before running out of money.

Q4: Should burn rate include one-time expenses?
A: Typically no - burn rate should reflect recurring operational costs. Large one-time purchases should be considered separately.

Q5: How often should burn rate be calculated?
A: Monthly calculation is standard, but startups often track it weekly or bi-weekly for closer financial monitoring.