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Burn Rate, Runway, Growth Rate & Default Alive (or Dead)

Updated: Jun 27, 2022

Thank you or joining me for another power packed message. Here are some key areas of finances you have to pay attention to straight away for your startup or MSME that even beginners can get a grip on immediately.


Let's get into it:



BURN

Formula = (money out) - (money in)


example:

June 2022:

Expenses = $100

Revenue = $40


$100 - $40 = 60$ would be the "burn" for the month.

note that 3 months of monthly burn would be a better way to look at it and we can call that your "average burn"



RUNWAY

Formula = (Bank balance) / (average burn) = a number of months of "runway" or time to keep operating and keep the business alive.


example:

June 2022:

Bank balance: $600

Average burn: $60


$600 / $60 = 10 months of runway



GROWTH RATE

Formula: (Cash in, Month Two) - (Cash in, Month One)

___________________________________

(Cash in, Month One)


example: ($150 cash in month two) - ($100 cash in, Month One)

___________________________________

($100 cash in, Month One)


equals: $150 - $100 = $50

$50 / $100 = 0.5

0.5 = 50%

50% = growth rate


DEFAULT ALIVE

If your expenses are pretty much constant and your revenues are growing and above the expenses, you are default alive. On the other-hand, if your revenue is less than expenses and you are in a state of burn absent any signs of growth, you are default dead.



KEY TAKEAWAYS

  • Start with these metrics and measure them monthly. As you do you will get more and more comfortable and gain confidence with finances.

  • Being default dead can be turned around if you have growth areas outside revenues such as a growing number of users or customers which may still excite investors to your cause.

  • Throwing money at something wont fix it, discipline does. Improve your discipline by observing a budget and push your resources to 120% to up the revenue while keeping expenses controlled.


Thanks for the visit! Keep getting better as you advance your life and discover your purpose. My hope for you is that you transition from follower into leader, and leader into an agent of change!


All


the best,


Rob


Disclaimer: This work is separate from my jobs at Aleanza, EDvents, and Integra Business School as the aim of this blog is to make transformational knowledge available to everyone who needs it.









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