This burn rate template demonstrates how to calculate the gross and net burn rate of cash of a company that is earning negative profit.
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Burn Rate refers to the rate at which a company depletes its cash pool in a loss-generating scenario. It is a common metric of performance and valuation for companies, including start-ups. A start-up is often unable to generate a positive net income in its early stages, as it is focused on growing its customer base and improving its product. As such, seed stage investors or venture capitalists often provide funding based on a company’s burn rate.
How to Calculate Burn Rate?
1. Gross Burn Rate
Gross Burn Rate is a company’s operating expenses. It is calculated by summing all operating expenses such as rent, salaries, and other overhead, and is often measured on a monthly basis. It also provides insight into a company’s cost drivers and efficiency regardless of revenue.
Net Burn Rate is the rate at which a company is losing money. It is calculated by subtracting operating expenses from revenue. It is also usually measured on a monthly basis. It shows how much cash a company needs to continue operating for a period of time.
Net Burn Rate = Cash / Monthly Operating Profit
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