Burn Rate
The rate at which a company spends cash monthly.
Burn rate measures how quickly a business is spending its cash reserves, typically expressed as a monthly amount. Gross burn rate is total monthly cash outflows, while net burn rate subtracts any incoming revenue. Startups and pre-profit businesses track burn rate closely to determine how long their funding will last.
Formula
Net Burn Rate = Monthly Expenses − Monthly RevenueExample
A startup with $300,000 in the bank and monthly expenses of $50,000 (offset by $20,000 in revenue) has a net burn rate of $30,000 per month.
Why It Matters for Your Business
If you don't know your burn rate, you can't predict when you'll run out of cash—the number one reason small businesses fail.
Practical Tips
- •Calculate burn rate monthly and track the trend—rising burn without rising revenue is a red flag.
- •Maintain at least 6 months of expenses in reserves to weather unexpected downturns.
Related Terms
More Cash-flow Terms
Cash Flow
The movement of money in and out of a business.
Cash Flow Forecast
A projection of expected cash inflows and outflows.
Cash Flow Statement
A financial statement showing cash movements from operations, investing, and financing.
Free Cash Flow
Cash from operations minus capital expenditures.
Operating Cash Flow
Cash generated from core business operations.
Related Financial Guides & Resources
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