Definition: The burn rate is typically used to describe the rate at which a new company is spending its venture capital to finance overhead before generating positive cash flow from operations. It is a measure of negative cash flow.

In Plain English: The burn rate is the size of your negative cash flow each month.

Example: Your bank account reduces, on average, by $20 each month. Your burn rate is $20.

Burn rate is an essential calculation when determining the runway of a business, meaning the amount of time that a company has before they have a negative cash balance. This is used in determining when a company needs to raise capital.