Cash burn rate measures the pace at which a business spends money and indicates how much time enterprises have before they need positive cash inflow. In other words, it's used to gauge how much your company spends in any given period. For instance, a $400,000 monthly burn rate equates to $400,000 spent each month.
While companies typically calculate their cash burn rate every month, this frequency may change depending on the current state of the business and its evolving needs. You might assess your company's cash burn rate every week or every day during an emergency. Conversely, you may only need to analyze your burn rate quarterly or yearly during periods of financial stability.
When determining your company's burn rate, it's important to remember that the resulting amount is quantitative and not qualitative. It will not indicate if this value is acceptable for your company. Burn rate also does not evaluate individual expenses. For a more in-depth view of your company's financial health, you can measure the burn rate against your business plan to find areas where spending can decrease, and income can improve.