{"id":2826,"date":"2025-02-05T17:00:00","date_gmt":"2025-02-05T17:00:00","guid":{"rendered":"https:\/\/omg.one\/blog\/?post_type=glossary&#038;p=2826"},"modified":"2025-01-31T14:37:57","modified_gmt":"2025-01-31T14:37:57","slug":"what-is-cash-burn","status":"publish","type":"glossary","link":"https:\/\/omg.one\/blog\/glossary\/what-is-cash-burn\/","title":{"rendered":"Cash Burn Rate\u00a0"},"content":{"rendered":"\n<p>The cash burn rate (also known as the cash runway) assesses how quickly a company (usually for startups) spends or \u201cburns\u201d through money to determine how long a company can operate before money runs out.&nbsp;<\/p>\n\n\n\n<p>To attain this figure, you will need the total capital and monthly operating expenses as shown in the burn rate formula below.&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><em>Burn Rate = Total Capital \/ Monthly Operating Expenses\u00a0<\/em><\/strong><\/li>\n<\/ul>\n\n\n\n<p>For example, if the total capital is \u00a32,000,000 and the monthly operating expense is \u00a3100,000, the burn rate would be 20 months (2,000,000 \/ 100,000). However, there are two other types of burn rates that could give you a deeper insight into the company\u2019s financial stance; they include:&nbsp;<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Gross Burn Rate = Total Monthly Operating Expense\u00a0<\/strong><\/li>\n<\/ol>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Your gross burn rate is the total monthly operating costs that the company incurs.\u00a0<\/li>\n<\/ul>\n\n\n\n<ol start=\"2\" class=\"wp-block-list\">\n<li><strong>Net Burn Rate = (Monthly Revenue &#8211; Cost of Goods Sold) &#8211; Gross Burn Rate\u00a0<\/strong><\/li>\n<\/ol>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Your net burn rate refers to how much you lose every month. This number can never exceed the gross burn rate, but it can be less.<\/li>\n<\/ul>\n\n\n\n<p>To put this into practice, let\u2019s say a FinTech startup\u2019s gross burn rate (monthly operating expense) is \u00a335,000, including \u00a310,000 for monthly workspace, \u00a310,000 on servers, and another \u00a315,000 on employee salaries. And let\u2019s say this startup earned \u00a325,000 in revenue from sales, and the cost of those goods sold tally up to 15,000 per month.&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Net Burn Rate = (\u00a325,000 &#8211; \u00a315,000) &#8211; \u00a335,000 = &#8211; \u00a325,000<\/li>\n<\/ul>\n\n\n\n<p>Hence, despite the startup spending \u00a335,000 per month, this calculation shows that it\u2019s losing \u00a325,000 per month. If the startup had \u00a3140,000 in the bank, its burn rate would be 5.6 months (140,000 \/ 25,000) instead of 4 months (140,000 \/ 35,000). As a rule of thumb, it is generally ideal to have 3 to 6 months\u2019 worth of expenses on hand.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The cash burn rate (also known as the cash runway) assesses how quickly a company (usually for startups) spends or \u201cburns\u201d through money to determine how long a company can operate before money runs out.&nbsp; To attain this figure, you will need the total capital and monthly operating expenses as&#8230;<\/p>\n","protected":false},"featured_media":0,"template":"","glossary_category":[42],"class_list":{"0":"post-2826","1":"glossary","2":"type-glossary","3":"status-publish","5":"glossary_category-c-terms"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Cash Burn Rate: Definition, Examples and Calculation Formula\u00a0<\/title>\n<meta name=\"description\" content=\"The cash burn rate assesses how quickly a company spends money to 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