CASHBURN RATE
Cash burn rate is how quickly a company spends its cash reserves, crucial for start-ups and growing businesses. It indicates how long a company can operate before needing more funds and shows investors the company’s financial stability and urgency for additional funding. Understanding the burn rate also helps in planning and controlling expenses to avoid running out of money.
There are two main types: gross burn rate, which is the total monthly expenses, and net burn rate, which is the monthly loss after revenue (gross burn rate minus revenue). To calculate the burn rate, determine the starting and ending cash balances for the month, subtract the ending balance from the starting balance, and divide by the number of months. For example, starting with Rs.500,000 and ending with Rs.400,000 results in a burn rate of Rs.100000 per month.
Managing the burn rate involves reducing unnecessary expenses, boosting sales or finding new revenue streams, and seeking additional funds from investors or loans. Understanding and managing the cash burn rate ensures the business remains financially healthy and operational.
By CA L.Muralidharan and CPA L.Mukundan
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