1. What Is Burn Rate?

Burn rate refers to the rate at which a company spends its venture capital to finance overhead before generating positive cash flow from operations. It's a key metric for startups and growing businesses to monitor their financial health and runway.

2. How Is Burn Rate Calculated?

The standard burn rate calculation formula is:

Where:

• \( \text{Starting Cash Balance} \) — Cash balance at the beginning of the period
• \( \text{Ending Cash Balance} \) — Cash balance at the end of the period
• \( \text{Number of Months} \) — Duration of the measurement period

Explanation: This calculation shows how quickly a company is spending its available cash reserves each month.

3. Importance of Burn Rate Calculation

Details: Monitoring burn rate helps companies determine their financial runway, make informed hiring decisions, plan fundraising activities, and avoid cash flow crises.

4. Using the Calculator

Tips: Enter starting and ending cash balances in dollars, and the number of months in the measurement period. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical startup burn rate?
A: Burn rates vary widely by industry and stage, but early-stage startups typically burn $50,000-$200,000 per month depending on team size and operational costs.

Q2: What's the difference between gross and net burn rate?
A: Gross burn rate is total monthly operating expenses, while net burn rate accounts for revenue (Gross Burn - Monthly Revenue).

Q3: How long will my cash last?
A: Runway = Current Cash Balance ÷ Monthly Burn Rate. This tells you how many months until you run out of cash.

Q4: When should I worry about my burn rate?
A: When your runway drops below 6-12 months, or if burn rate is increasing without corresponding growth in revenue or valuation.

Q5: How can I reduce my burn rate?
A: Common strategies include reducing non-essential expenses, optimizing team size, renegotiating vendor contracts, and focusing on revenue-generating activities.