Burn Rate Calculator

Burn Rate Formula:

\[ \text{Burn Rate} = \frac{\text{Starting Cash} - \text{Ending Cash}}{\text{Number of Months}} \]

Burn Rate:

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1. What is Burn Rate?

Burn rate is the rate at which a company spends its cash reserves before generating positive cash flow. It's typically expressed as a monthly amount (e.g., $10,000/month). Understanding burn rate helps businesses plan their runway and make financial decisions.

2. How to Calculate Burn Rate

The basic burn rate formula is:

\[ \text{Burn Rate} = \frac{\text{Starting Cash} - \text{Ending Cash}}{\text{Number of Months}} \]

Where:

Starting Cash — Cash balance at the beginning of the period
Ending Cash — Cash balance at the end of the period
Number of Months — Duration between the two cash measurements

Example: If a company had $100,000 at the start of the quarter and $70,000 at the end (3 months later), the burn rate would be ($100,000 - $70,000) / 3 = $10,000/month.

3. Importance of Burn Rate

Details: Burn rate helps businesses determine:

How long they can operate before needing additional funding (runway)
When they might reach profitability
Whether cost-cutting measures are needed
Investment requirements for sustainability

4. Using the Calculator

Tips:

Use consistent time periods (monthly is most common)
Track both gross burn (total expenses) and net burn (revenue minus expenses)
Calculate regularly to monitor financial health

5. Frequently Asked Questions (FAQ)

Q1: What's a good burn rate for a startup?
A: It depends on the stage and funding, but generally you want enough runway (cash/burn rate) for 12-18 months of operations.

Q2: How is burn rate different from cash flow?
A: Burn rate focuses specifically on cash consumption, while cash flow includes all cash movements (both in and out).

Q3: What's the difference between gross and net burn?
A: Gross burn is total expenses, while net burn accounts for revenue (total expenses minus income).

Q4: How often should burn rate be calculated?
A: Monthly calculation is typical, but startups might track it weekly during early stages or cash crunches.

Q5: What actions should be taken if burn rate is too high?
A: Options include reducing expenses, increasing revenue, securing additional funding, or pivoting the business model.