The term sounds just awful and can conjure up
images of piles of currency in flames. The term is burn
rate and is one of the most important measurements for new companies to
track. Burn rate is defined as the speed at which a company uses up the cash it
has. Often the rate is given on a monthly basis, but in times of severe cash
shortages, it may even be quoted based on a weekly or daily usage.
The cash for a new company, especially as it is just beginning to market a
product or service, often comes from savings invested by the entrepreneur. The
funding may also come from loans from relatives or banks. Sometimes the new
company may have caught the eye of an angle or venture capitalist who was
willing to take a chance on the idea.
When a burn rate exceeds what a company has
forecasted based on the cash it has, often the owner has to make difficult
cost-cutting decisions to ensure the company’s survival. Before a new manager
can control his or her burn rate, he or she needs to be able to calculate what
it is.
For a business executive, who has better things
to do such as meeting with new clients and hiring valuable staff, an
understandable, easy-to-use tool or software that can be updated daily with
very little time investment would be valuable. An accounts software for small businesses
can help a company track and control its burn rate.
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