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Burn Rate Formula:
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Burn rate is a key financial metric that measures how quickly a company is spending its cash reserves. It represents the rate at which a company is losing money, typically expressed in dollars per month.
The calculator uses the burn rate formula:
Where:
Explanation: This formula calculates the average monthly cash burn by dividing total expenses by the time period over which those expenses occurred.
Details: Understanding burn rate is crucial for startups and businesses to manage cash flow, determine runway (how long until funds run out), and make informed decisions about fundraising and cost management.
Tips: Enter total expenses in dollars and the time period in months. Both values must be positive numbers greater than zero.
Q1: What is considered a good burn rate?
A: A "good" burn rate depends on the company's stage, funding, and growth strategy. Generally, a lower burn rate extends runway, while higher burn rates may be acceptable for rapid growth companies.
Q2: How is burn rate different from runway?
A: Burn rate measures cash spent per month, while runway calculates how many months the company can operate before running out of cash (Runway = Cash Balance ÷ Burn Rate).
Q3: Should all expenses be included in burn rate?
A: Yes, include all operating expenses - salaries, rent, marketing, R&D, and other costs. Capital expenditures may be treated separately depending on the analysis.
Q4: How often should burn rate be calculated?
A: Monthly calculation is recommended for active monitoring. Startups should track burn rate weekly or bi-weekly during critical periods.
Q5: Can burn rate be negative?
A: If a company is profitable and generating more cash than it spends, this is often called "negative burn" or positive cash flow, which is ideal for sustainable businesses.