Burn Rate Calculator

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What is Burn Rate?

Burn rate refers to the rate at which a company spends its capital, particularly venture capital, to finance overhead before generating positive cash flow from operations. It's a measure of how quickly a company uses up its cash reserves or investments. Burn rate is crucial for startups and growth-stage companies that have yet to reach profitability.

What is a Startup runway?

Runway is the period over which a company can continue operating with its current level of cash before it exhausts its resources. It is calculated by dividing the current cash balance by the monthly burn rate.

Types of Burn Rate

Gross Burn

Gross burn is the total amount of operating expenses a company incurs in a given month. It includes all cash spent on operations and growth, such as salaries, rent, utilities, and marketing expenses.

Net Burn

Net burn takes into account the company's revenues; it's the net cash flow out of the business each month. Net burn rate is calculated by subtracting the company's monthly revenue from its gross burn rate.

How to calculate burn rate?

Calculating burn rate involves understanding how quickly a company is spending its cash reserves over a specific period, typically on a monthly basis. Here's how to calculate both the gross and net burn rates:

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Gross Burn Rate

Identify Total Expenses: Sum up all the cash expenses your company incurs in a month. This includes everything from salaries, rent, utilities, marketing, and any other operational expenses.

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Calculate Monthly Average (if necessary): If you're looking at a period longer than a month, calculate the average monthly expenses by dividing the total expenses by the number of months in the period.

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The formula for Gross Burn Rate is:

Gross Burn Rate =Total Monthly Cash Expenses

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Net Burn Rate

Calculate Monthly Revenue: Determine how much revenue your company generates in a month. This includes all income from sales, services, and any other sources of business income.

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Subtract Revenue from Expenses: Take your total monthly expenses and subtract the monthly revenue from this figure.

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The formula for Net Burn Rate is:

Net Burn Rate =Total Monthly Cash Expenses−Monthly Revenue

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Example

Let's say a startup has the following financials for a given month:

Monthly expenses (salaries, rent, etc.): 50,000
Monthly revenue: 20,000

Gross Burn Rate: The gross burn rate would be the total monthly expenses, which is 50,000.

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Net Burn Rate: To calculate the net burn rate, subtract the monthly revenue from the total expenses:

Net Burn Rate = 50,000−20,000=30,000

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Therefore, the startup's net burn rate is $30,000 per month, indicating it spends 30,000 more than it earns every month.

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Understanding burn rate is crucial for startups and businesses in their early stages, as it helps determine how long the company can operate before needing additional funding or reaching profitability.

How to use this calculator?

Use this Burn Rate and Runway Calculator for easy financial planning. Input your data to quickly find your cash burn, end balance, and runway, plus explore expense adjustment impacts

Step 01

Begin by entering your starting cash balance, monthly expenses, and monthly revenue into the respective fields labeled "Current Balance," "Monthly Expenses," and "Monthly Revenue."

Step 02

Input the anticipated monthly growth percentage into the "Growth Rate" field.

Step 03

The calculator will then display your cash burn rate, your cash balance at the end of the month, and your financial runway.

Step 04

To increase your startup's financial runway and decrease the burn rate, enter any planned increases or decreases in expenses, along with the months when these changes will take effect, into the "Addition From" and "Reduction From" fields, respectively.

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