What is Burn Rate?
Burn rate is the speed at which a company spends its cash reserves before generating positive cash flow from operations. This key financial metric measures how quickly a business is using up its available capital, typically expressed as a monthly figure in pounds sterling.
For accountancy firms and their clients, understanding burn rate is essential for cash flow management, financial forecasting, and advising businesses on their runway to profitability or next funding round.
Gross Burn Rate refers to the total amount of cash a company spends each month on operating expenses, without accounting for any incoming revenue. This figure includes all outgoings from payroll and premises costs to software subscriptions and professional fees.
Net Burn Rate subtracts monthly revenue from total monthly expenses, showing the actual rate at which a company depletes its cash reserves. This metric provides accountants and finance directors with a more realistic picture of financial sustainability and is particularly useful when advising clients on cash flow management.
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