What Is Startup Burn Rate?
Startup burn rate measures how quickly a company is spending its cash reserves before reaching profitability or raising additional funding. Tracking burn rate is crucial for founders and investors to understand a startup's financial health and runway.
Startup burn rate is a critical metric that measures how quickly a company is spending its cash reserves. It is calculated as negative cash flow over a set period, usually monthly. There are two types of burn rate: gross burn, which refers to total monthly spending, and net burn, which takes revenue into account. For example, if a startup spends £80,000 per month and generates £30,000 in revenue, its gross burn is £80,000, but its net burn is £50,000. Burn rate directly affects a startup's runway, which is the amount of time it has before its cash reserves are depleted. A startup with £1 million in the bank and a net burn of £100,000 per month has roughly 10 months of runway. Tracking burn rate is essential for founders and investors to understand a startup's financial health and make informed decisions about hiring, growth plans, and fundraising strategy.
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