What is Burn Rate?

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.