# Startup Burn Rate Calculator

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Mark Suster suspects that most startups will spend any VC money within 12 – 18 months of investment. Burn rate will vary significantly depending on company stage, pricing model, and industry.

Gross burn rate measures your monthly operating expenses without taking revenue into account. Net burn rate, on the other hand, tells you how much money you’re spending per month, but includes revenue in the equation. For funded startups, the relationship of burn rate to revenue is especially important.You’re still spending \$3,500 a month to stay in business, but last month you made \$2,000. Burn rate can be an anxiety-provoking statistic in the early stages of a funded startup.

## You Can’t Afford To Ignore Your Burn Rate

The burn rate tells you how much cash the company is burning through, but it doesn’t address whether the burn rate is reasonable. It’s up to each analyst to carefully assess the business plan and determine whether the burn rate is justified or troubling. The burn rate tells companies how much money they’re spending and how quickly they’re spending it. The term is usually used in the context of a new company that’s trying to ramp up its operations and become profitable.

Recall that the gross burn rate takes into account solely the cash losses. In this scenario, we are assuming that this start-up had \$500k in its bank account and just raised \$10mm in equity financing – for a total cash balance of \$10.5mm. By dividing the current cash balance by the burn rate, the runway can be calculated, which again is the number of months a company has left until the cash balance drops to zero. The burn rate is the pace at which a new company is running through its startup capital ahead of it generating any positive cash flow. For a startup or early-stage business, it’s important to highlight the monthly burn rate and the runway until the next financing is required.In this case, you divide your operating income by the amount of cash initially invested in the business. Alternatively, you can use your total cash at any point in time when looking for your burn rate over a specific period of time. When you need to make a big change like this, you’re operating a lot like a new business. You need to know how long you have to develop and test ways to increase revenue before the bank’s money runs out. You also need to budget for interest payments once you do start making a profit again.

## Who Needs To Worry About Burn Rate?

Beyond that, responsible growth and planning are not possible without knowing how much money is left after expenses to reinvest in your company. And if you’re running a startup, you’re almost certainly overspending somewhere. These are numbers you’ll want to have ready if investors inquire .

• If you’re burning through \$100,000 a month, it’s going to take a significant amount of revenue just to break even.
• The calculation of the gross burn rate only takes into account the total cash outflows for the period into consideration.
• It will also help make sure your calculations aren’t skewed by an extraordinarily good sales month.
• For example, if your company has a burn rate of \$10,000 then that means you are spending approximately \$10,000 per month in excess of your revenues.

Layoffs often occur in larger start-ups that are pursuing a leaner strategy or that have just agreed to a new financing deal. As you can see from the information above, keeping your burn rate as low as possible is always a good idea. They know how important numbers are to the success of a business. They also know that your burn rate is a key indicator of your startup’s sustainability. Your startup’s burn rate is a key indicator of the strength of both your business plans and business practices. It’s no wonder, then, that the sharks on the television show Shark Tank make it a point to ask each entrepreneur about their burn rate.