If you calculate burn rate using data from only one or two months, any fluctuations in spending may give you an inaccurate read on how quickly you are, in fact, spending money.

The key to calculating burn rate is to choose a period that is long enough to deliver an accurate average. According to the burn rate formula, your business is losing $100,000 per month. After three months, you check back in and see that your cash balance has dropped to $900,000. This brings your starting cash balance to $1.2 million. Let’s say that your business already had $200,000 in the bank before the investor funding was received. So keeping an eye on burn rate will be paramount to making sure your cash reserve isn’t shrinking too quickly. As a business, you’ll want to be strategic about what you spend money on and when you might seek more fundraising. Congratulations! You now have the capital you need to make some big investments into your business, whether that means hiring more employees, purchasing an expensive piece of equipment, changing offices, or all three.Īs you begin to spend that money, you will start to see your cash balances deplete. Let’s say that your startup has just raised $1 million in funding from investors.

The formula is simply:īurn Rate = (Starting Balance – Ending Balance) / # Months The calculation for burn rate is straightforward, especially with a cash flow statement on hand. If you are making more money than you’re spending, the rate will be negative. The number provided is the rate at which you are depleting your cash stores each month. If you want to see your burn rate based on last quarter’s spending, for example, input the cash balance you had at the beginning of the quarter, the balance at the end of the quarter, and the number of months (three in this case). To calculate your own burn rate, you’ll want to look at your cash balances over a period of time, which are best found on past cash flow statements. This calculation helps business owners understand how long they can continue to operate at this rate before running out of money, which is called the cash runway. This is a particularly important metric for startups and venture-backed businesses that might be operating at a loss intentionally, investing more than they’re earning back into the business. Burn rate is a measure of how quickly a business is losing, or burning through, money.

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