Monthly Burn Rate Calculator
Understanding Your Burn Rate
Burn rate is a crucial metric for startups and businesses, especially those that are not yet profitable. It measures how quickly a company is spending its available cash reserves to cover its operating expenses. Understanding your burn rate is essential for financial planning, fundraising, and ensuring the long-term survival of your business.
What is Burn Rate?
The burn rate is typically expressed as a monthly figure. It represents the net cash outflow per month. For example, if a company spends $15,000 on salaries, rent, marketing, and other operational costs in a month and brings in $5,000 in revenue, its gross burn rate is $15,000, and its net burn rate is $10,000 ($15,000 expenses – $5,000 revenue). This calculator focuses on the gross burn rate, representing your total outgoing cash.
Why is Burn Rate Important?
Knowing your burn rate allows you to calculate your runway, which is the amount of time your company can continue to operate before running out of cash, assuming your expenses and revenue remain constant. A healthy runway gives you a buffer to achieve key milestones, secure further funding, or reach profitability.
How to Calculate Your Burn Rate
To calculate your monthly burn rate, you need to sum up all your company's expenses for a given month. This includes costs like:
- Salaries and wages
- Rent and utilities
- Marketing and advertising
- Software subscriptions
- Office supplies
- Legal and accounting fees
- Any other operational costs
Interpreting the Results
Once you have your monthly burn rate, you can determine your runway by dividing your current cash reserves by your monthly burn rate. For instance, if your total monthly expenses (burn rate) are $15,000 and you have $75,000 in cash reserves, your runway is 5 months ($75,000 / $15,000). This means you have enough cash to sustain operations for five months at your current spending level. It's crucial to monitor your burn rate regularly and adjust your spending or revenue generation strategies as needed to extend your runway.