![]() ![]() It’s not uncommon for high-growth startups to run a deficit for the entirety of their early-growth stage. That, in turn, allows you (and investors) to determine how much time you have left before the company runs out of cash. Knowing your burn rate allows you to track the amount of cash used each month to finance your company’s operations. Why Is Burn Rate Important?Īs a measure of negative cash flow, burn rate is a crucial metric for understanding your startup’s overall financial health. Once a startup begins generating positive cash flow, burn rate is usually (but not always) shelved. Startups use burn rate to refer to the period during which early-stage financing - loans, private equity investing, and so on - forms the operating capital of a company. ![]() Burn rate is effectively negative cash flow and is typically measured in monthly increments. The term ‘ burn rate’ refers to the rate at which a startup or new company uses - ‘burns’ - its liquid cash. ![]() This article from Founder’s CPA will explore everything you need to know about calculating burn rate for your startup. While important, your startup’s burn rate is not the ‘end-all’ of financial metrics. Understanding this data point can also help with calculating your runway, which is crucial to have visibility into to avoid running out of cash. Calculating burn rate, or the rate at which your company is using its cash, is an important metric for both you and your investors. If you’re working on building your startup or new company, the early days are absolutely vital. ![]()
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