Burn Rate
Burn rate is the speed at which your business spends its cash reserves, typically measured per month. It tells you how quickly you are going through money, whether or not you are generating revenue.
Types
Gross Burn Rate
Total cash spent per month, regardless of revenue. If you spend $40,000 in a month, your gross burn rate is $40,000.
Net Burn Rate
Cash spent minus cash received. If you spend $40,000 but bring in $25,000, your net burn rate is $15,000 per month.
Why it matters
Burn rate matters because it directly determines how long your business can survive without additional revenue or funding. A high burn rate with low revenue means you have limited time to turn things around. A low burn rate gives you options.
Real-world example
A dental practice brings in $60,000 per month and spends $75,000. Their net burn rate is $15,000 per month. If they have $90,000 in the bank, they have 6 months of runway before cash runs out, assuming nothing changes.
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