Burn Rate

The rate at which a company spends its cash reserves, typically expressed as a monthly figure. If a startup has $100,000 in the bank and spends $10,000 per month on expenses (salaries, software, marketing, office space) while generating minimal revenue, it has a burn rate of $10,000/month and a runway of 10 months before running out of money. Understanding burn rate is critical for startups and businesses that aren't yet profitable. Investors closely watch burn rate to assess how long a company can operate before needing additional funding. The goal is to achieve profitability or secure more funding before cash runs out.

Why it matters

Even bootstrapped AI businesses need to monitor burn rate. Understanding your monthly expenses helps you make strategic decisions about when to quit your job, which tools to invest in, and how aggressively to scale.