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Burn Rate Definition and Example

by Delarno
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Burn Rate Definition

Burn rate refers to the rate at which a company is using up its cash reserves or funding to cover its expenses. It is usually expressed as a monthly or yearly rate of spending.

For example, if a startup company has raised $1 million in funding and is spending $100,000 per month on salaries, rent, and other expenses, its burn rate is $100,000 per month. This means that the company will run out of money in 10 months if it does not generate any revenue or raise additional funding.

Burn rate is an important metric for startups and other early-stage companies as it helps them to understand how quickly they are using up their resources and how much time they have before they need to raise more funding or become profitable. High burn rates can be a warning sign for investors as it may indicate that a company is spending too much money too quickly without generating enough revenue to sustain itself.

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