'Burn out rate' & 'current runaway'

Anyone any idea how to calculate?

Didn't find your answer?

I have a client who needs to submit a form to the Canadian authorities.

They have asked for the company's 'burn out rate' which looks as though its the average amount of money he gets through every month

I've found this online:

Let's focus on a period of time, such as a quarter. What's the difference in your cash balance at the beginning of the quarter and at the end of the quarter? So if you started with $10,000 "in the bank", and at the end of the quarter, you have $4000 you burned $6000.

Divide by the number of months in the period of time you selected. There are three months in a quarter, so your company burned $2000 a month.

>> but the client makes a profit every month - so what is the 'burn out'? Nil??

Replies (5)

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By paul.benny
03rd Jun 2019 13:13

1) I'd ask the issuer of the form, if possible. Are there guidance notes for the form.

2) Your client may be profitable but are they consuming cash for investment or increasing working capital?

3) If you can't find any reliable guidance, I'd define my response so that the recipient can understand what is provided. "the expression 'x' is not commonly used in the UK. On the basis that it means 'y', the answer is z".

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Glenn Martin
By Glenn Martin
03rd Jun 2019 13:32

The burn rate is the net cash outflow each month.

So its cashflow related not profit, does he have capital loan payments to make is he funding long term WIP etc.

Its usually a startup thing, investors need to calculate how much cash gets burned before it becomes cash generating.

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By Accountant A
03rd Jun 2019 13:33

EOAKS wrote:

but the client makes a profit every month - so what is the 'burn out'? Nil??

Unless things have changed recently, profit is not the same as cashflow.

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By EOAKS
03rd Jun 2019 13:36

>>> sorry I meant that the bank account increases every month so income exceeds expenses and the bank account is increasing.

He's been going for 6 years

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Replying to EOAKS:
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By Accountant A
03rd Jun 2019 15:11

EOAKS wrote:

>>> sorry I meant that the bank account increases every month so income exceeds expenses and the bank account is increasing.

He's been going for 6 years

But if the liabilities are increasing at a greater rate, that's still negative cashflow!

Have you got a link to this form or can you give us more details?

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