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:
- Enter how much money you're starting with under "starting balance."
- Enter how much money you would like to end with after spending money to start your business.
- Enter how money months you want to spend launching your business.
- Click on Calculate to generate your burn rate per month and cash runway in months.
- This information can help you determine how long you can operate at a loss before you need to close your business.
- 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:
- 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.
- 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.
- 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).
There are 3 main elements of a cash flow statement:
- 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.
- 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.
- 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?
How do I calculate burn rate?
How do I calculate gross burn rate?
How do I calculate net burn rate?
What does it mean if I have a high burn rate?
How do I reduce my burn rate?
What does cash runway mean?
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!
Powerful accounting software that has everything you need to confidently run your business.