Burn Rate

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Burn Rate is a financial term meaning how fast money is being consumed versus the time it takes to do it. Typically it is about expenses versus budget, but it could as easily be the total of Income and Expenses versus budget.

The time component comes into play when the Budget is estimated on a monthly basis. For example, the planned budget for a December convention might be:

$100 in Aug, $300 in Sept, $500 in Oct, $700 in Nov, and $900 in Dec.

The actual expenses might come in at:

$90 in Aug, $290 in Sep, $550 in Oct, and $700 in Nov.

In this example, there was an underrun of expenses in Aug and Sep, an overrun in Oct and a match on Nov. The total budget of $2500 has only $870 remaining, not enough to cover Dec's predicted expenses. This may be a serious problem, or it might not, but it needs to be identified early. The early underruns might have lulled management into a false sense of security, but the overrun in Oct was a serious sign, and the match in Nov, although good news, was not good enough to fix the problem.

Another way to catch this budding problem would be to carefully compare actual purchases with planned ones, to be sure the right things are being purchased for the right price at the right time. What you would be looking for is signs that you are underbuying (poor quality or quantity) or overpaying (high price for value received). You may have to correct for that later, but in a time crunch (or on a holiday weekend) you may not be able to pay a fair price for the product or service you need.