The burn rate describes how quickly a company – particularly a start-up – uses up its financial resources before generating sufficient or sustainable revenue. It is a key indicator for assessing financial stability and shows how long a company can continue to operate before additional capital is required.
A distinction is often made between:
- Gross Burn: A company’s total monthly expenditure
- Net Burn: actual capital expenditure after deduction of revenue
The burn rate helps companies to:
- to calculate the remaining financial runway
- Identifying liquidity risks at an early stage
- Optimising cost structures
- Planning funding requirements more effectively
- Making growth decisions based on sound data
A controlled burn rate is particularly crucial in the early stages of a start-up, as it has a direct impact on its viability and potential for scaling.
innoWerft helps start-ups to draw up realistic financial plans, assess the economic viability of their business models and develop sustainable growth strategies, with a view to using capital efficiently and specifically reducing the time to profitability.