Burn Rate

Burn rate is the speed at which a company spends its cash, usually measured monthly. It's a key indicator for startups, as it shows how long they can continue to operate with the funds they have before needing to find new sources of financing.

How does burn rate work?

Burn rate is calculated by subtracting monthly revenue from monthly expenses. If a startup spends €50,000 per month and generates €10,000 in revenue, its burn rate is €40,000 per month. This figure helps founders and investors understand how long the company can last with its available cash.

Concrete example

Imagine a startup that has raised €500,000 and has a burn rate of €50,000 per month. Without additional revenue or fundraising, this startup will have 10 months before running out of cash. This allows leaders to plan ahead, whether to reduce costs or to raise additional funds before the money runs out.

Why is burn rate important?

Knowing your burn rate is essential for a startup, as it determines how quickly you are using your funding. A burn rate that is too high may indicate the company will need to raise funds quickly, while a controlled burn rate allows you to optimize resources and extend the cash runway.

Need help calculating or reducing your burn rate?

If you have questions about your burn rate or want advice on how to reduce it, contact us via the contact form on our website. We can help you better manage your finances and optimize your spending to ensure your startup's growth.