Burn rate calculator
Use this burn rate calculator to see how long it will take your business to reach profitability. This calculation is key to measuring sustainability and is especially helpful for start-ups when it comes to deciding when, where and how much to invest in your business.
Burn Rate Calculator
What is Burn Rate?
Burn rate is a financial metric that indicates the rate at which a company is spending its capital before generating positive cash flow. It is a crucial measure for startups and businesses to understand their financial health and sustainability. By calculating the burn rate, companies can determine how long they can operate before needing additional funding.
Why is Burn Rate Important?
Understanding your burn rate is essential for strategic planning and financial management. It helps businesses assess their spending patterns, plan for future funding needs, and make informed decisions about growth and investment. A well-managed burn rate ensures that a company can sustain operations and achieve key milestones without running out of cash.
How to Calculate Burn Rate
Calculating burn rate involves determining the difference between your starting and ending cash balances over a specific period, then dividing that difference by the number of months in the period. The formula for calculating burn rate is:
Monthly Burn Rate = (Starting Balance - Ending Balance) ÷ Number of Months
Example Calculation
Suppose your company starts with a cash balance of $500,000 and ends with $350,000 over a period of 6 months. The burn rate would be calculated as follows:
Monthly Burn Rate = ($500,000 - $350,000) ÷ 6 = $25,000
This means your company is spending $25,000 per month. Understanding this rate helps in planning for future expenses and funding needs.
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