Burn rate (1): the formula

Your organisation’s burn rate is the amount of money you “burn” each month to do what you do.

It’s a simple sum, but few organisations seem to keep a close eye on it.

Expenses

How much are you spending each month? Make sure you count everything – especially big annual expenses you need to be saving towards, or reserves you have a responsibility to build.

Minus income

How much can you reliably expect to come in in the coming months?

Into assets

How much unallocated money do you have in the bank?

Equals burn rate

For a given time period, subtract the third number (income) from the first (expenses) to get your burn rate – your net outgoings (or income) per month.

Time remaining

Divide (unallocated) money in the bank by burn rate. That’s how many months your organisation has before it dies. (If your burn rate is negative, congratulations – your operation is currently sustainable.)

The mirror

How do you look?

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