Cash Burn Rate Calculator
Calculate your company's monthly cash burn rate to understand how quickly you are spending your available cash reserves.
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'; // Clear previous results if (isNaN(startingCash) || isNaN(cashInflows) || isNaN(cashOutflows)) { errorDiv.innerHTML += "Please enter valid numbers for all fields."; return; } if (startingCash < 0 || cashInflows < 0 || cashOutflows 0) { netBurnRateDisplay = "Net Burn Rate: $" + netBurnRate.toFixed(2) + " per month"; } else if (netBurnRate 0) { if (startingCash > 0) { runwayInMonths = startingCash / netBurnRate; document.getElementById("runwayInMonths").innerHTML = "Runway: " + runwayInMonths.toFixed(2) + " months"; } else { document.getElementById("runwayInMonths").innerHTML = "Runway: N/A (Starting cash balance is zero or negative)"; } } else { document.getElementById("runwayInMonths").innerHTML = "Runway: N/A (Company is not burning cash)"; } }Understanding Your Cash Burn Rate
The cash burn rate is a crucial metric for any startup or business, especially those in their early stages or operating at a loss. It quantifies the rate at which a company is spending its available cash reserves to cover its operating expenses before it starts generating positive cash flow. Essentially, it answers the question: "How long can my company survive with the cash it has on hand?"
Why is Cash Burn Rate Important?
- Financial Planning: Knowing your burn rate allows for more accurate financial forecasting and budgeting.
- Investor Relations: Investors scrutinize burn rates to assess a company's financial health and the efficiency of its spending. A high burn rate without corresponding growth can be a red flag.
- Operational Efficiency: Analyzing your burn rate can highlight areas where expenses might be too high, prompting a review of operational costs.
- Runway Management: The burn rate directly influences your company's "runway" – the amount of time you have before your cash runs out. A controlled burn rate extends your runway, giving you more time to achieve profitability or secure additional funding.
How to Calculate Your Cash Burn Rate
The calculation involves understanding your cash inflows and outflows over a specific period, typically a month.
Formula:
Net Burn Rate = Total Cash Outflows (Monthly) - Total Cash Inflows (Monthly)
- Starting Cash Balance: This is the total amount of cash your company has available at the beginning of the period you are analyzing.
- Total Cash Inflows (Monthly): This includes all the money coming into the company during the month from all sources (e.g., revenue from sales, investment received, interest earned).
- Total Cash Outflows (Monthly): This encompasses all the money leaving the company during the month (e.g., salaries, rent, marketing costs, inventory purchases, operational expenses).
A positive Net Burn Rate means your company is spending more cash than it's bringing in. A negative Net Burn Rate signifies that your company is generating more cash than it's spending, which is a healthy sign of positive cash flow.
Calculating Your Runway
Once you have your Net Burn Rate, you can calculate your runway, which is the estimated number of months your company can continue operating before its cash reserves are depleted, assuming current spending and revenue patterns continue.
Formula:
Runway (in months) = Starting Cash Balance / Net Burn Rate
It's crucial to monitor your cash burn rate and runway regularly. Adjusting your spending, increasing revenue, or securing funding can extend your runway and ensure the long-term viability of your business.
Example Calculation:
Let's say a tech startup has the following financial figures for a given month:
- Starting Cash Balance: $500,000
- Total Cash Inflows (Monthly): $75,000 (from software subscriptions and a small consulting project)
- Total Cash Outflows (Monthly): $125,000 (salaries, office rent, cloud hosting, marketing spend)
Calculation:
- Net Burn Rate = $125,000 – $75,000 = $50,000 per month
- Runway = $500,000 / $50,000 = 10 months
In this example, the startup has a monthly cash burn rate of $50,000 and a runway of 10 months. This means they need to either increase their cash inflows, decrease their outflows, or secure additional funding within the next 10 months to avoid running out of cash.