How to Calculate Burn Rate with ChatGPT

Chances are you know you need to track your company’s spending, but getting a clear picture can feel like manual labor. You have to compile data, wrangle spreadsheets, and hope your formulas are correct. This guide will show you how to use ChatGPT to simplify the whole process, enabling you to calculate, understand, and analyze your burn rate in plain English.

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What Exactly is Burn Rate?

Burn rate is the speed at which your company is spending its cash reserves. Understanding this metric is not just a financial exercise, it's fundamental to your company's survival, telling you how long you can operate before you run out of money. Think of it like the fuel gauge on a car - it tells you how much runway you have before you need to refuel (raise more capital or become profitable).

There are two primary types of burn rate you should know:

• Gross Burn Rate: This is the total amount of cash your company spends in a month on operating expenses. This includes salaries, rent, marketing, software subscriptions - essentially, all the money going out in a given month.
• Net Burn Rate: This is the more commonly used figure. It is your gross burn rate minus any revenue or incoming cash during the month. Net burn is the real number of how much money you’re “losing” each month and provides a much clearer overview of your overall financial health than gross burn.

Tracking your net burn rate allows you to make smarter decisions. Are you hiring too fast? Is a specific marketing channel draining cash without a return? Knowing your burn rate helps you answer these questions and adjust your strategy before it’s too late.

Prepping Your Financial Data for ChatGPT

The saying “garbage in, garbage out” is more accurate than ever when working with AI data assistants. The quality of ChatGPT's analysis is dependent on the quality and organization of the data you provide. Before you can ask it to calculate your burn rates, you need to collect and structure your financial information in a way the model can easily understand.

What Financial Data You’ll Need

To get an accurate picture of your burn rate, gather the following for a specific time period (e.g., the last three or six months broken down monthly):

• Beginning Cash Balance: How much cash you had at the very start of the period.
• Ending Cash Balance: How much cash you had at the end of the period.
• Total Cash In (Revenue): All the money that came into the business, including sales, service fees, or investment funding.
• Total Cash Out (Expenses): A detailed and organized breakdown of your company's monthly operating expenses, categorized appropriately. Main ones may include things like salaries and benefits, marketing and advertising, software/SaaS tools charges, general and administrative costs.

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How to Structure Your Data

The clearest and easiest format for ChatGPT to use is a simple CSV file (Comma-Separated Values). You can create this in Excel, Google Sheets, or any other spreadsheet program you are familiar with. Be sure to provide clear columns and categorized rows to ensure the organization is crystal clear for the AI prompt you are working on. We highly recommend you anonymize and use categories that are not confidential. Avoid using any vendor names, etc.

Here's a simple layout for it:

Month,Total Revenue,Salaries & Benefits,Marketing,Software Fees,Office Rent,Other Operating Expenses
Jan 2024,"15,500","25,000","5,500","1,200","3,000","800"
Feb 2024,"17,200","25,100","6,200","1,250","3,000","950"
Mar 2024,"18,100","25,150","7,500","1,300","3,000","700"
Apr 2024,"19,500","32,000","8,100","1,500","3,000","1,100"
May 2024,"21,000","32,500","8,500","1,550","3,000","1,250"
Jun 2024,"22,500","32,600","9,200","1,600","3,000","1,400"

Note: To ensure data privacy, avoid uploading sensitive information. This means avoiding files with employee names, customer details, or proprietary vendor specifics and information. Using summarized figures from your accounting software should suffice for this exercise, as we showed above with the simple format provided.

Calculating Your Burn Rate & Runway: Step-by-Step with Prompts

Once you’ve put together your clean, organized dataset, you're ready to give it to ChatGPT. You can just prompt in regular conversational English to do all your financial work from here! Let's now walk through how to proceed with specific questions and how to do that.

1. Calculating Basic Monthly Burn

If you're starting and wanting some simple info, all you need is the beginning cash balance and the ending cash balance. Net burn requires all the financial breakdowns we will mention soon in this blog, but for right now, let's keep it nice and simple:

Prompt:

I need help calculating my company's net burn rate. Here is some simplified financial data:
- Beginning Cash on January 1st: $500,000
- Ending Cash on June 30th: $305,000

Calculate the total net burn for this 6-month period and the average monthly net burn rate.

ChatGPT will swiftly use that data and in a moment tell you it found out this for you! You’ll quickly know both your total burn for the entire period and your average monthly burn, which helps forecast.

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2. Detailed Monthly Breakdown

For a detailed analysis of net, gross, and total burn rates, copy and paste that formatted CSV data we just created above directly into the chatbox and prompt!

Prompt:

Analyze the following financial data. For each month, please calculate:
1. Gross Burn Rate (total expenses)
2. Net Burn Rate (total expenses - total revenue)
Present this analysis in a table format for clarity.

Here are the details from our data:
Month,Total Revenue,"Salaries & Benefits",Marketing,Software Fees,"Office Rent","Other Operating Expenses"
Jan 2024,"15,500","25,000","5,500","1,200","3,000","800"
Feb 2024,"17,200","25,100","6,200","1,250","3,000","950"
Mar 2024,"18,100","25,150","7,500","1,300","3,000","700"
Apr 2024,"19,500","32,000","8,100","1,500","3,000","1,100"
May 2024,"21,000","32,500","8,500","1,550","3,000","1,250"
Jun 2024,"22,500","32,600","9,200","1,600","3,000","1,400"

The AI will process the data and will instantly return the analysis in a table. This shows both of your burn figures. No spreadsheets needed, and you are just moments into your data journey.

3. Predicting Your Runway

Now that you know your monthly net burn rate and have some historical data, the most critical question remains: "How long until I run dry?" With the data we just generated, let's go ahead and prompt your way through the forecast.

Prompt:

Using the average Net Burn Rate from the previous analysis, if our current cash balance today is $250,500, what is our financial runway in months?

ChatGPT will instantly divide your remaining cash balance by the net monthly burn rate, giving you the number of months of runway until your business cannot pay more bills. It provides that immediate forecasting for your runway. This way you'll know if you should try to become profitable quickly or if you should start your next fundraising efforts. This is where AI data analytics becomes exciting.

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Asking Follow-ups for Smarter Business Decisions

The real value is that these calculations give you strategic insights and information to begin moving in the direction you want with your company’s spending and earning habits from our burn rate analysis. You can use ChatGPT as your new business strategy partner for brainstorming, forecasting different scenarios, and getting an even deeper understanding of your finances.

These prompts can provide inspiration. Let’s get you on the path with questions you might not originally think to ask:

• Identifying a Cost Issue with Your Business: "From the previous analysis about burn rate, marketing costs seem very high in relation to everything else with my company. Can you break down the impact of marketing spend on our net burn rate as a percentage of total by month? How will our runway change if we decrease this spending by 20% over each of the next three-month periods with the data we've just created?"
• Trend Analysis: “Based on the past six-month data, what were the major trends noted about gross burn vs. net burn? What do you see happening with those trends? Summarize how these trends should inform how I think about our business strategy going forward based on this analysis done together with you.”

Common Sense Checks and Mistakes

While AI can greatly reduce the heavy lifting in all of these calculations we've done together, it's very important that you treat this assistant like your new hire and a partner -- not as an absolute authority that is perfect all the time. To avoid common mistakes, keep these tips in mind to spare yourself some troubleshooting later:

• Always Double-Check the Work: Use ChatGPT to speed you up, but don't just trust it without looking at the data yourself. If the outcome seems a bit off from what you expected, go back to your spreadsheet to check calculations manually for accuracy. Never forget this step as it can cause major issues with the accuracy of your work.
• Precise Prompts Equate to Precise Answers: The more detail you provide in your prompt, the better results you are going to get with everything you do. If you are a little vague in the ask, you'll get a vague or incorrect answer. Be crystal clear about the ask and data sourcing with your prompts as we just showed.
• Protect That Confidential Data: Never paste any data with personally identifying information about your employees, customers, vendors, or other confidential details into general AI tools like ChatGPT. Always summarize data and anonymize as much as possible without losing the significance of what that data means to your business before you upload anything.

Final Thoughts

Calculating your company’s burn rate doesn't have to be an overwhelming or daunting process. Instead of fighting with spreadsheets, you can now use AI as your new financial data analyst to uncover trends, forecast your runway, and make much better decisions about your business's financial health. Whether you plan to track sales or just want better insights on your transactions, move ahead with AI and see the difference.

Consider integrating a reliable tool like Graphed , which supports businesses by keeping financial data organized and simplifies the process further. With a comprehensive calendar, you can stay ahead by scheduling future financial analysis and gaining a deeper understanding of your operations. The use of platforms like Graphed allows you to focus on what you do best in your business.