[2] If the shareholder capital is exhausted, the company will either have to start making a profit, find additional funding, or close down.
Burn rate can also refer to how quickly individuals spend their money, particularly their discretionary income.
For example, Mackenzie Investments commissioned a test to gauge the spending and saving behavior of Canadians to determine if they are “Overspenders.”[3] Burn rate is also used in project management to determine the rate at which hours (allocated to a project) are being used, to identify when work is going out of scope, or when efficiencies are being lost.
The term came into common use during the dot-com era when many start-up companies went through several stages of funding before emerging into profitability and positive cash flows and thus becoming self-sustainable (or, as for the majority, failing to find additional funding and sustainable business models and thus going bankrupt).
[4] Some entrepreneurs and investors say that part of the reasons behind the dot-com bust was the unsound management and financial investor practices to keep the burn rate up, taking it as a proxy for how fast the start-up company was acquiring a customer base.