Startup Financial Forecasting: Calculating Burn Rate, Runway, and Growth Rate with Tim Brady
This article is a summary of a YouTube video "Tim Brady - How do you calculate burn rate, runway and growth rate?" by Y Combinator
TLDR Startups must prioritize financial forecasting, calculate their burn rate and runway, monitor their growth rate, and be transparent with investors to avoid running out of cash and misleading investors.
Startups' burn rate is the amount of cash they're spending each month, calculated by subtracting cash outflow from inflow.
Your runway is the amount of time you have left before running out of cash, calculated by dividing your cash by your burn rate.
Startups must prioritize and make monthly financial forecasts to avoid running out of cash.
Check weekly growth rate to gauge investor interest in sales growth.
The key to calculating growth rate is dividing this month's revenue by last month's revenue, subtracting one, and expressing it as a compound number.
Founders should compound their growth to avoid incorrect growth rate calculations and misleading investors.
Be transparent with investors about your growth rate to avoid being perceived as overstating it.