Cash burn rate
In one sentenceThe amount by which the business's cash balance falls each month, meaning the difference between what goes out and what comes in; it is often used by startups.
Simply put
A business in its early days may spend more than it collects for months. The burn rate answers: how much of our cash are we losing each month?
There is “gross burn”, which is everything that goes out monthly, and “net burn”, which is outflows minus inflows. Net burn is what determines how long your cash will last.
Worked example
An app startup had a cash balance of 900,000 SAR at the start of the quarter, which became 600,000 SAR after three months.
Decrease in the quarter900,000 − 600,000 = 300,000 SAR
Number of months3
Net burn = 300,000 ÷ 3100,000 SAR per month
Formula: (Cash at start of period − cash at end) ÷ number of months