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Burn rate

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Burn rate
The rate at which a start-up uses its Venture capital funding before it begins earning any revenue.
    
The rate at which a new company uses up its Venture capital to finance overhead before generating positive Cash flow from operations is called burn rate .In other words; it's a measure of negative Cash flow.  It is a measure for how fast a company Will use up its shareholder capital. If the shareholder capital is exhausted, the company Will either have to start making a profit, find additional funding, or close down.
    
Burn rate is calculated via the formula, 1/ CPI, where CPI stands for Cost Performance Index, which is equal to Earned Value / Actual cost.
    
The term burn rate can also refer to how quickly individuals spend their money, particularly their discretionary income. For example, Mackenzie Investments commissioned a test to gauge the spending and saving behavior of Canadians to determine if they are "Over spenders".
    
For a company with negative Cash flow, the rate of that negative Cash flow, usually per month.
    
Often used by venture capitalists to measure how much time a startup has to reach positive Cash flow before they run out of money or require additional funding. Burn rate is a synonymous term for negative Cash flow. It is a measure for how fast a company Will use up its shareholder capital. If the shareholder capital is exhausted, the company Will either have to start making a profit, find additional funding, or close down.
    
The term came into common use during the dot-com era when many start-up companies went through several stages of funding before emerging into profitability and positive Cash flows and hence becoming self-sustainable (or, as for the majority, failing to find additional funding and sustainable business models and hence going bankrupt). In between funding events, burn rate becomes an important management measure, since it together with the available funds provides a time measure to when the next funding event needs to take place.
Posted by  Cityscape Abu Dhabi
 
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