What it is: The burn rate is when a company spends or loses money over a specific period, indicating how quickly it depletes its cash reserves.
Why it is essential: Startups, particularly those backed by venture capital, often have a high burn rate as they invest heavily in growth and product development before reaching profitability. Monitoring the burn rate is crucial for managing cash flow, adjusting spending, and planning fundraising activities.
Formulas: Burn Rate = Total Expenses / Time Period
How to use it in startups: By tracking the burn rate, startups can assess their financial sustainability and make informed decisions about resource allocation, cost management, and fundraising timelines.