The phrases “Burn Rate” and “Use of Proceeds” are often confused. One is a term and the other is a document.
Burn Rate: The “Burn Rate” for a company is the speed per month at which your start-up capital (cash) is being used up before you are able to have positive cash flow. It is a term that should not be confused with “Cash Flow”, which is the rate of monies coming in and out of the business. The “Burn Rate” includes everything that you will outlay money for (wages, marketing, utilities, supplies, licensing, professional fees, computers etc…). Accurately forecasting your burn rate is crucial to determine your start-up capital needs. Ask us how to prepare an accurate budget, cash flow statement and other critical financial planning tools.
Use of Proceeds: When raising capital, investors will almost always ask you “How will you use the funds being raised?” This document will detail if the money to be used is for capital expenditures, expansion, inventory, product development (including prototypes), or even the retirement of previous debt. Each item that money will spent on is detailed along with its priority. “Use of Proceeds” documents are not limited to new ventures and are not the same as the “Burn rate”.
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