Burn rate is the rate at which a company is losing money. It is typically expressed in monthly terms. E.g., "the company's burn rate is currently $65,000 per month." In this sense, the word "burn" is a synonymous term for negative cash flow. It is also a measure of how fast a company will use up its shareholder capital.Ehrenberg, David
"Is Your Company Dangerously Rushing To Scale?"
''Forbes.com'' January 4, 2013. Retrieved on May 20, 2014. If the shareholder capital is exhausted, the company will either have to start making a profit, find additional funding, or close down. Burn rate can also refer to how quickly individuals spend their money, particularly their

discretionary income Disposable income is total personal income minus current income taxes. In national accounts definitions, personal income minus personal current taxes equals disposable personal income. Subtracting personal outlays (which includes the major ...

. For example, Mackenzie Investments commissioned a test to gauge the spending and saving behavior of Canadians to determine if they are “Overspenders.” Burn rate is also used in

project management Project management is the process of leading the work of a team to achieve all project goals within the given constraints. This information is usually described in project documentation, created at the beginning of the development process. T ...

to determine the rate at which hours (allocated to a project) are being used, to identify when work is going out of scope, or when efficiencies are being lost. The term is also used in biology, to refer to a person's basic metabolic rate; in rocketry, it refers to the rate at which a rocket is burning fuel; and in chemistry.

History

The term came into common use during the

dot-com era The dot-com bubble (dot-com boom, tech bubble, or the Internet bubble) was a stock market bubble in the late 1990s, a period of massive growth in the use and adoption of the Internet. Between 1995 and its peak in March 2000, the Nasdaq Compo ...

when many start-up companies went through several stages of funding before emerging into profitability and positive cash flows and thus becoming self-sustainable (or, as for the majority, failing to find additional funding and sustainable business models and thus going bankrupt). In between funding events, burn rate becomes an important management measure, since together with the available funds, it provides a time measure to when the next funding event needs to take place.

Ron Conway Ronald Crawford Conway (born March 9, 1951) is an American venture capitalist and philanthropist. He has been described as one of Silicon Valley's " super angels". Early career Conway graduated from San Jose State University with a bachelor's d ...

and Mike Maples
lecture and discussion with science and engineering entrepreneurship students
Stanford Entrepreneurship Corner, 2008.01.23 Some entrepreneurs and investors say that part of the reasons behind the

dot-com bust The dot-com bubble (dot-com boom, tech bubble, or the Internet bubble) was a stock market bubble in the late 1990s, a period of massive growth in the use and adoption of the Internet. Between 1995 and its peak in March 2000, the Nasdaq Compos ...

was the unsound management and financial investor practices to keep the burn rate up, taking it as a proxy for how fast the start-up company was acquiring a customer base.

In project management

Aside from financing, the term burn rate is also used in

to determine the rate at which hours (allocated to a project) are being used, to identify when work is going out of scope, or when efficiencies are being lost. Simply put, the burn rate of any project is the rate at which the project budget is being burned (spent).

References

External links

Burn Rate Info and Related Reports
{{DEFAULTSORT:Burn Rate Cash flow Business terms Business indices