An expert in the field of commercial insurance, Bill Scuorzo serves as president and CEO of BCG Advisors in Secaucus, New Jersey. Recently, Bill Scuorzo also became president and CEO of AndAme Investments, which helps struggling small businesses and startups become more efficient. When analyzing the financial situation of a startup, it is critically important to think about the company’s burn rate.
The term burn rate refers to the monthly amount of money that a business is losing. The burn rate is a reminder that a startup will run out of money if it does not begin generating sufficient revenue. Investors often look at the burn rate and future income projections when they decide whether or not to invest in a startup.
To calculate the burn rate, startups need to consider their fixed and variable costs. Fixed costs are those that do not change between months, such as rent, insurance, and loan repayments. Variable costs change with production and typically increase as the company makes more of its product. Burn rate is the difference between monthly expenses and income. Startups can use this number to calculate a runway or the amount of time that the company can survive without bringing in additional revenue. The runway is the company’s current cash balance divided by the burn rate.
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