/bɜːn reɪt/

Burn rate is the speed at which a company spends its money/capital.

The speed at which their money is decreasing is crucial to monitor for two reasons:

  1. without money most companies, early-stage startups in particular, fail.
  2. if they don't know their burn rate they won't have enough time to raise new funds or reduce their expenses.

We distinguish between two types of burn rate:

  1. gross burn
  2. net burn.

Gross burn amounts to all the monthly, plus any other expenses a company might have.

Net burn is derived from deducting gross burn from the revenue (all incoming cash).

It is important to note that a burn rate is not a fixed sum as a company's revenue and expenses change on a monthly basis. Therefore, what potential investors focus on is net burn. Net burn gives them better understanding and overview of your finances, how long the money will last you and the rate at which your expences grow.