START-UP’S BURN RATE

January 28, 2021 Dencel Lachica Comment(0)

Contrary to the constant stream of overnight successes parading across social media, running your own business is not easy. Just because you open a business, it does not mean you are going to immediately start making money. After the heady rush of getting started, a lot of factors begin vying for your attention. One factor you might want to give thought is the company’s burn rate.

Burn rate is the rate at which a startup spends or loses their money. It can be similarly defined as “negative cash flows”. At this stage, you need to recognise how many weeks/months you can survive based on the organisation’s monthly expenses and allocating the capital.

This execution phase of your business is one of the most difficult stages. The company’s burn rate may be equal, greater, or less than the expected execution of the project. Therefore, startups should become aware of their cost performance index to monitor if the burn rate is safe for the enterprise. This is one of the reasons why startups also look for potential investors to help in funding the company.

So, if you are thinking of making the leap or have already started operating your own business, prepare yourself for the long, roller coaster journey you are about to enter.

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