Burn Rate tracks the rate of money spent by a start-up over time. The source of this money is usually funds raised through venture capitals. Burn Rate depicts negative cash flow and must be offset by cash in-flow for a company to be profitable. It can be calculated with either Gross Burn or Net Burn, based on whether you want to understand operating expenditure alone or in relation to revenue.
Start-up founders have an enormous list of things to achieve and very less time to achieve them. Keeping tabs on the Burn Rate is a simple and easy way to take the pulse of your start-up and avoid being the last to know that your business is out of money.
Tracking Burn Rate and Runway at least twice a week is a great way to be informed of the company's financial health and have information handy for the next round of funding. Another useful metric to track alongside Burn Rate is Burn Rate per Employee. Overall, keeping track of Burn Rate can quantify the competency of a founder.
