1. What is Burn Rate?

Burn Rate is a key financial metric that measures how quickly a company is spending its cash reserves. It calculates the monthly rate at which a business is using up its capital to cover operating expenses before generating positive cash flow from operations.

2. How Does the Calculator Work?

The calculator uses the Burn Rate formula:

Where:

• \( \text{Total Expenses} \) — Total cash spent during the period (dollars)
• \( \text{Time Period} \) — Duration of the expense period (months)

Explanation: This formula calculates the average monthly cash expenditure, helping businesses understand their cash consumption rate and runway.

3. Importance of Burn Rate Calculation

Details: Monitoring burn rate is crucial for startups and growing businesses to manage cash flow, determine financial runway, make strategic decisions about fundraising, and avoid running out of cash.

4. Using the Calculator

Tips: Enter total expenses in dollars and time period in months. Both values must be positive numbers. The result shows your monthly burn rate in dollars per month.

5. Frequently Asked Questions (FAQ)

Q1: What is a good burn rate for a startup?
A: It depends on the business stage and funding. Generally, startups should aim for 12-18 months of runway. A lower burn rate extends your company's survival time.

Q2: How is burn rate different from cash flow?
A: Burn rate specifically measures cash outflow, while cash flow considers both incoming and outgoing cash. Burn rate focuses on net cash consumption.

Q3: What expenses should be included in burn rate calculation?
A: Include all operating expenses: salaries, rent, marketing, software, utilities, and any other cash outflows required to run the business.

Q4: How often should burn rate be calculated?
A: Monthly calculation is recommended for active monitoring. Startups should track it weekly during critical growth phases or fundraising periods.

Q5: What is gross burn rate vs net burn rate?
A: Gross burn rate is total cash spent, while net burn rate accounts for revenue (Net Burn = Total Expenses - Revenue).