Enter the initial balance, ending balance, and the number of months into the calculator to determine the burn rate of a company or business.
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Burn Rate Formula
The following formula is used to calculate the burn rate on a monthly basis of a startup or project.
BR = (B1 – B2) / m
- Where BR is the burn rate ($/month)
- B1 is the initial amount of capital ($)
- B2 is the final amount of capital ($)
- m is the total number of months
Burn Rate Definition
What is a burn rate? A burn rate is a measure of the total monthly spending rate that a company is seeing over a given period. Burn rate is typically displayed as a value of $ per month, but it can also be displayed as a percentage of the initial investment per month.
Burn Rate Example
How to calculate burn rate?
- First, determine the total initial balance. This is typically equal to the total initial investment received in a round of funding. For this example, we will assume the beginning balance to be $1,000,000.00.
- Next, determine the final balance. Calculate the final balance at the end of the period. For this example, the final balance is found to be $200,000.00.
- Next, determine the number of months that have passed. For this example, 6 months have passed.
- Finally, calculate the burn rate using the formula above. ($1,000,000.00 – $200,000.00 ) / 6 = $133,333.00 per month.
Burn Rate Information
Can burn rate be negative? A burn rate can and often is negative if the company or business in question is generating a profit. In these cases, the business is generating more income than it’s spending and the ending balance ends up being larger than the initial balance.
What is a good burn rate? A good burn rate depends on the state of a company. For very new startups, many investor want to see a higher burn rate. This is because early stage startups are looking to expand as fast as possible, and this is done in part from spending more money. For companies later in their phase, lower burn rates are desired as investors want to start seeing a profit.
How can burn rate be used? A burn rate has many analytical uses. One of those used is to determine the expected final cost of a project. For example, let’s say a project manager is overseeing a project that has ran for 6 months. Using the burn rate, that manager can calculate the expected final cost by extrapolating that burn rate through the anticipated final completion date.