How Do I Calculate My Startup's Burn Rate?
Burn rate is how fast you’re spending money. Two versions matter: gross burn and net burn.
Gross burn is total monthly expenses. Payroll, rent, software, contractors, everything. Add it up. If you spent $47,000 last month, your gross burn is $47,000.
Net burn is expenses minus revenue. If you spent $47,000 but brought in $12,000, your net burn is $35,000. This is the number that determines how long you can survive.
Runway is how many months you have left. Take your cash balance and divide by net burn. If you have $280,000 in the bank and net burn is $35,000, you have eight months of runway.
The math is simple. The discipline is harder. Burn rate changes month to month. A big annual payment throws off the average. Hiring someone new bumps it up permanently. Revenue is unpredictable early on. One good month doesn’t mean the next will match.
Track it monthly. Use a trailing three-month average to smooth out the noise. Know your number before investors ask, because they will.
Startups raising money need this dialed in. Investors want to know how long their money lasts. If you can’t answer that clearly, it raises questions about how you’re running the company.
If your books aren’t clean enough to calculate burn rate confidently, that’s the first problem to fix. A good bookkeeper can give you the numbers you need to answer this question without guessing.
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