Burn rate calculator

Use this burn rate calculator to see how long it will take your business to reach profitability. This calculation is key to measuring sustainability and is especially helpful for start-ups when it comes to deciding when, where and how much to invest in your business.

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What is burn rate?

Burn rate indicates how quickly your company is using or “burning” your start-up capital before it starts generating a positive cash flow. In other words, it’s a measure of how long your business can operate until it has to seek more capital. Burn rate is calculated by comparing your cash balance at the start versus the end of the period and then dividing that difference by the number of months.

How to manage your burn rate like a pro

You should measure your burn rate carefully as potential lenders and investors will be using it to gauge whether your company will continue to be cash flow positive in the near future. Here are a few helpful tips:

  • It’s important to understand what percentage of your burn rate is from fixed costs (i.e. rent and equipment) compared to variable costs (i.e. marketing and freelancers). If the market or your operations take a negative turn, look at how you can cut your variable costs quickly.
  • There’s no “right” burn rate as it will vary significantly by industry and other factors. A good benchmark is to make sure you have at least six months-worth of cash available based on your current burn rate.
  • Concerned about your start-up’s burn rate? Set up a plan with a personalized accounting coach to make sure your bookkeeping is on the right track and to get advice when you need it.
  • You can view automatic and up-to-date cash flow reports for your business by using Wave's free accounting software.
  • Check out our other accounting tools that can help you calculate cash flow, budget, and more!

How to use the burn rate calculator

To calculate your burn rate with this free tool, follow these instructions:

  1. Enter how much money you're starting with under "starting balance."
  2. Enter how much money you would like to end with after spending money to start your business.
  3. Enter how money months you want to spend launching your business.
  4. Click on Calculate to generate your burn rate per month and cash runway in months.
  5. This information can help you determine how long you can operate at a loss before you need to close your business.
  6. Use this info to find out how quickly you need to build your client base and earn revenue before your cash flow depletes.

Essential parts of a cash flow report

There are 3 main elements of a cash flow statement:

  1. Gross cash inflow: This is the total amount of money coming into your business; this includes money generated from selling your goods and services, money from loans or lines of credit, and other sources of incoming cash.
  2. Gross cash outflow: This is the total amount of money exiting your business; this can be from making business purchases, generating inventory, paying sales taxes, paying back a loan or line of credit, payroll, and more.
  3. Net cash change: This is the net difference between your cash inflow and cash outflow; you should strive towards having a positive cash flow (more inflowing cash than outflowing cash).

What’s a Rich Text element?

The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.

Static and dynamic content editing

A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!

How to customize formatting for each rich text

Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.

  1. asdas
  2. asdas
  3. asdasd
  4. asdas
  5. da
  6. asd
  7. asd
  8. asda
  9. asd
  10. asd

There are 3 main elements of a cash flow statement:

  1. Gross cash inflow: This is the total amount of money coming into your business; this includes money generated from selling your goods and services, money from loans or lines of credit, and other sources of incoming cash.
  2. Gross cash outflow: This is the total amount of money exiting your business; this can be from making business purchases, generating inventory, paying sales taxes, paying back a loan or line of credit, payroll, and more.
  3. Net cash change: This is the net difference between your cash inflow and cash outflow; you should strive towards having a positive cash flow (more inflowing cash than outflowing cash).

Benefits of using a burn rate calculator

  • Know exactly how many months you can run your business without bringing in net income
  • Predict how long you can run you business with existing cash reserves
  • Improve your decision-making and budget planning processes
  • Find the best times and opportunities to make purchases or get additional money from lenders

Burn rate calculator

FAQs

Why does burn rate matter?

Burn rate measures how quickly your business is losing money each month. This matters because it helps you know exactly how long you can continue running your business without making any significant changes before you run out of money. Keeping a close eye on your burn rate will help you stay focused and committed to finding new sources of revenue (new customers, product offerings, etc.) to keep your business surviving and thriving.

How do I calculate burn rate?

To calculate your business’ monthly burn rate, you can use this simple formula:

Monthly Burn Rate = (Cash at Start of Period - Cash at End of Period) / Number of Months

The formula above shows you how quickly you are using up cash each month to run your business. 

Here’s an example: In January, you started your own business with $10,000. At the end of June, you have $2,000. Based on the $8,000 you have spent in six months (from January to June), you are burning roughly $1,333 per month. This also means that you have roughly a month and a half before you run out of all the money you started with, assuming you have no revenue or other sources of income coming in.

How do I calculate gross burn rate?

Gross burn rate shows how much you spend on monthly operating expenses versus the total amount of cash you have available for your business. Use this formula to calculate gross burn rate:

Gross Burn Rate (%) = Monthly Operating Expenses / Starting Cash Available * 100

Monthly operating expenses include everything you spend to keep your business running each month, such as rent, equipment, and software costs.

Here’s an example: If you spend $1,000 a month running your business, and you started running your business with $20,000, you would have a gross burn rate of 5%. This means that, each month, you’re using 5% of your total starting cash available to run your business.

How do I calculate net burn rate?

Net burn rate is the rate at which your business loses money each month, based on your monthly revenue, your monthly operating expenses, and the cash you started with to run your business. Use this formula to calculate net burn rate:

Net Burn Rate (%) = (Revenue - Monthly Operating Expenses) / Starting Cash Available * 100

Net burn rate can help you measure how much your business profits each month versus how much your business spends each month to keep the lights on, compared to your starting investment.

Here’s an example: If your business earns $1,000 in revenue per month, you spend $2,000 a month running your business, and spent $20,000 to start running your business, you would have a net burn rate of 5%. This means that, after revenue, you’re burning through 5% of your starting investment to run your business.

What does it mean if I have a high burn rate?

If you have a high burn rate, this means that you are spending a considerable amount of your initial startup investment each month to run your business. A high burn rate means that you will run out of money to run your business quicker than someone with a lower burn rate. If you’ve found that your business has a high burn rate, you should find ways to clamp down on expenses your business is incurring and reduce your burn rate.

How do I reduce my burn rate?

To reduce your business burn rate (and increase your cash runway), try focusing on at least one of the following areas:

  • Reduce operating expenses: Review your monthly operating expenses and see what areas are costing you the most to keep the lights on. If there are opportunities to switch vendors (e.g. change to a less expensive internet provider), do so.
  • Use free software vs. paid options: If there are certain softwares or tools to run your business, see if there are any free options available versus the paid ones you are using. For example, if you are currently using a paid service to send invoices to customers, consider switching to a free invoicing software such as Wave.
  • Get more customers: Finding opportunities to increase revenue will help your business stay afloat in the long-run. Gaining a steady stream of loyal customers can help reduce the net amount of cash you’ll burn through each month.
  • Increase your margins: If you can’t find ways to reduce your regular operating expenses, you may need to increase the price of goods and/or services you sell to increase the overall take-home income you gain from each sale. Do some competitive research and see if there’s room for your to increase prices.

What does cash runway mean?

Cash runway is the amount of time your business can continue to operate at its current burn rate before it runs out of all the money it started with. After you calculate your burn rate, there is a simple formula you can use to calculate cash runway:

Cash Runway = Current Cash Balance / Burn Rate

Here’s an example: If you currently have $10,000 to run your business and you have a burn rate of $2,000 per month, you have 5 months of runway until you run out of cash for your business.

How to manage your burn rate like a pro

You should measure your burn rate carefully as potential lenders and investors will be using it to gauge whether your company will continue to be cash flow positive in the near future. Here are a few helpful tips:

  • It’s important to understand what percentage of your burn rate is from fixed costs (i.e. rent and equipment) compared to variable costs (i.e. marketing and freelancers). If the market or your operations take a negative turn, look at how you can cut your variable costs quickly.
  • There’s no “right” burn rate as it will vary significantly by industry and other factors. A good benchmark is to make sure you have at least six months-worth of cash available based on your current burn rate.
  • Concerned about your start-up’s burn rate? Set up a plan with a personalized accounting coach to make sure your bookkeeping is on the right track and to get advice when you need it.
  • You can view automatic and up-to-date cash flow reports for your business by using Wave's free accounting software.
  • Check out our other accounting tools that can help you calculate cash flow, budget, and more!
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