If we’ve told you once, we’ve told you a thousand times – cash flow is the lifeblood of your franchise business, and exhausting all your cash can only mean one thing…shutting up shop!
Burn Rate Explained…
Burn rate is quite simply the rate at which you burn through your cash reserves over time. This capital burn is related to how long your business can survive before it needs to seek additional outside financial assistance to stay in business.
How Do I Calculate My Burn Rate?
If you’re a start-up and you need to know how long you have before you must become profitable, or your business is doing poorly and you need to know how much time you have before you go bust, the burn rate is useful. Your current assets divided by your average daily operating costs equals your burn rate per month. Dividing your cash reserves by this figure tells you how many months that cash will last.
Why Should I Care About My Burn Rate?
It can provide investors with a useful indication of whether or not your franchise is a good investment, or a risky one.