1. What is Burn Rate?

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 as a monthly amount.

2. How Does the Calculator Work?

The calculator uses the burn rate formula:

Where:

• \( \text{Beginning Cash} \) — Cash balance at the start of the period ($)
• \( \text{Ending Cash} \) — Cash balance at the end of the period ($)
• \( \text{Time} \) — Duration of the period (months)

Explanation: The formula calculates the average monthly cash expenditure by dividing the total cash spent during the period by the number of months.

3. Importance of Burn Rate Calculation

Details: Understanding burn rate is crucial for startups and businesses to manage cash flow, determine runway (how long until cash runs out), and make informed financial decisions about fundraising and cost management.

4. Using the Calculator

Tips: Enter beginning cash balance in dollars, ending cash balance in dollars, and time period in months. All values must be valid (time > 0).

5. Frequently Asked Questions (FAQ)

Q1: What is a good burn rate for a startup?
A: It depends on the company's stage and funding. Generally, startups should aim for a burn rate that gives them 12-18 months of runway before needing additional funding.

Q2: What's the difference between gross burn and net burn?
A: Gross burn is total cash spent per month, while net burn accounts for revenue (Net Burn = Gross Burn - Revenue).

Q3: How do you calculate runway from burn rate?
A: Runway = Current Cash Balance ÷ Monthly Burn Rate. This shows how many months until cash runs out.

Q4: When should companies be concerned about their burn rate?
A: When runway drops below 6 months, when burn rate is increasing without corresponding growth, or when it exceeds fundraising plans.

Q5: Can burn rate be negative?
A: Yes, a negative burn rate means the company is generating more cash than it's spending, indicating profitability or positive cash flow.