Cash Burning

In accounting, cash burning does not mean to take fire and to burn the cash currency. Cash burning means to spend cash out of capital before getting it from earning or revenue. We can measure the level of cash burning through checking of our cash outflows. These cash outflow may be used for making of new product, buying of machinery and buying of raw material and other expenses etc. We say it as cash burning because if our produced products  or bought products or our bought services will not generate any income, it will be the loss of our capital and time.

Burn Rate Vs Return Rate 

Burn rate tells the per month payment of cash for various expenses when we start a new business. For example, a person makes partnership firm for selling the small family products. For this, he has to invest money in the form of raw material, shops, vehicles and other expenses in new partnership. If we calculate it and find per month cash expenses, it will our burn rate.

Return rate is the rate of return on total investment. If you get money from other, you will tell the return rate not burn rate. But it is the duty of investor to estimate  the burn rate before investing the money. Past cash flow statements may help to find burn rate in which you are investing your money. Dharmesh Shah suggested in Onstartups , if you see that company is burning your cash with high burning rate, you should start using smaller bills.

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