The Cash Burn Rate is a crucial financial metric, especially for startups and businesses in their growth phase. It represents the rate at which a company is spending its cash reserves to cover its operating expenses before it begins to generate positive cash flow or secures additional funding. Understanding your burn rate helps in financial planning, forecasting, and assessing the company's financial health and runway.
How to Calculate Cash Burn Rate
There are two primary ways to look at the burn rate:
Gross Burn Rate: This is simply the total amount of cash a company spends in a given period, usually a month. It's the sum of all operating expenses.
Net Burn Rate: This is the more commonly used metric. It's the difference between the cash spent and the cash received during a period. It shows the actual reduction in cash reserves.
The formula for Net Burn Rate is:
Net Burn Rate = Monthly Revenue – Monthly Operating Expenses
A negative result means your expenses are higher than your revenue, and you are burning cash.
Calculating Your Runway
The Runway is the amount of time a company can continue to operate with its current cash reserves, given its net burn rate. It's a critical indicator of how long the business can survive without additional capital.
The formula for Runway is:
Runway = Current Cash Balance / Net Burn Rate
The result is typically expressed in months.
Projected Burn Rate and Runway
This calculator also allows you to project your burn rate and runway based on anticipated changes in revenue and expenses. By inputting projected increases, you can get a more dynamic view of your company's financial future and identify potential funding needs or periods of financial strain well in advance.
The projected monthly expenses are calculated as: Monthly Operating Expenses * (1 + (Projected Expense Increase / 100)).
The projected monthly revenue is calculated as: Monthly Revenue * (1 + (Projected Revenue Increase / 100)).
The projected net burn rate is then derived from these adjusted figures. The projected runway is calculated based on the current cash balance and the projected net burn rate over the specified projection period.
Use Cases:
Startups: To manage initial funding and plan for future investment rounds.
Financial Planning: To forecast cash needs and set realistic financial goals.
Investor Relations: To demonstrate financial discipline and strategic planning to potential investors.
Operational Management: To identify areas where costs can be cut or revenue can be increased to extend runway.
function calculateCashBurnRate() {
var cashOnHand = parseFloat(document.getElementById("cashOnHand").value);
var monthlyOperatingExpenses = parseFloat(document.getElementById("monthlyOperatingExpenses").value);
var monthlyRevenue = parseFloat(document.getElementById("monthlyRevenue").value);
var projectedRevenueIncrease = parseFloat(document.getElementById("projectedRevenueIncrease").value) / 100;
var projectedExpenseIncrease = parseFloat(document.getElementById("projectedExpenseIncrease").value) / 100;
var monthsProjected = parseInt(document.getElementById("monthsProjected").value);
var burnRateElement = document.getElementById("burnRateResult");
var runwayElement = document.getElementById("runwayResult");
burnRateElement.innerHTML = ""; // Clear previous results
runwayElement.innerHTML = "";
// Input validation
if (isNaN(cashOnHand) || cashOnHand < 0) {
burnRateElement.innerHTML = "Please enter a valid current cash balance.";
return;
}
if (isNaN(monthlyOperatingExpenses) || monthlyOperatingExpenses < 0) {
burnRateElement.innerHTML = "Please enter valid monthly operating expenses.";
return;
}
if (isNaN(monthlyRevenue) || monthlyRevenue < 0) {
burnRateElement.innerHTML = "Please enter valid monthly revenue.";
return;
}
if (isNaN(projectedRevenueIncrease)) {
burnRateElement.innerHTML = "Please enter a valid projected revenue increase percentage.";
return;
}
if (isNaN(projectedExpenseIncrease)) {
burnRateElement.innerHTML = "Please enter a valid projected expense increase percentage.";
return;
}
if (isNaN(monthsProjected) || monthsProjected <= 0) {
burnRateElement.innerHTML = "Please enter a valid number of months to project.";
return;
}
// Calculate Net Burn Rate
var netBurnRate = monthlyRevenue – monthlyOperatingExpenses;
// Calculate Projected Monthly Expenses and Revenue
var projectedMonthlyExpenses = monthlyOperatingExpenses * (1 + projectedExpenseIncrease);
var projectedMonthlyRevenue = monthlyRevenue * (1 + projectedRevenueIncrease);
// Calculate Projected Net Burn Rate
var projectedNetBurnRate = projectedMonthlyRevenue – projectedMonthlyExpenses;
// Calculate Runway
var runwayInMonths = 0;
if (netBurnRate < 0) {
runwayInMonths = cashOnHand / Math.abs(netBurnRate);
} else if (netBurnRate === 0) {
runwayInMonths = Infinity; // Effectively infinite runway if no burn
} else {
runwayInMonths = "N/A (Positive Cash Flow)";
}
var displayBurnRate = "";
if (netBurnRate < 0) {
displayBurnRate = "Your Net Burn Rate is: $" + Math.abs(netBurnRate).toFixed(2) + " per month";
} else if (netBurnRate === 0) {
displayBurnRate = "Your Net Burn Rate is: $0.00 per month (Breaking Even)";
} else {
displayBurnRate = "Your Net Burn Rate is: -$" + netBurnRate.toFixed(2) + " per month (Generating Cash)";
}
burnRateElement.innerHTML = displayBurnRate;
var displayRunway = "";
if (typeof runwayInMonths === 'number' && isFinite(runwayInMonths)) {
displayRunway = "Your Current Runway is: " + runwayInMonths.toFixed(1) + " months";
} else if (runwayInMonths === Infinity) {
displayRunway = "Your Current Runway is: Infinite (Breaking Even)";
}
else {
displayRunway = "Your Current Runway is: " + runwayInMonths + "";
}
runwayElement.innerHTML = displayRunway;
// Optional: Display projected values if needed, or integrate into the explanation
// For simplicity, current implementation focuses on current burn rate and runway.
// Advanced versions could project future cash balance and runway month-by-month.
}