Prepare a Burn-Rate Analysis and Dashboard

I always like to keep a close eye on my average monthly “burn-rate.” During a time of crisis, knowing the ins and outs of your burn-rate is vital because there are so many decisions being made quickly.  Having a good handle on your burn-rate enables you to pay more attention to the variable cost side of the equation knowing you have already considered your operational fixed costs through a burn-rate analysis.

A burn-rate can be what you want it to be. Consequently, the first step is to set a definition for your organization’s burn-rate.  The basic components to me are labor and labor burden and occupancy costs.  From there I layer on certain other regularly recurring costs such as insurance, information technology (IT), governance, communications, core programing direct expenses (example – membership expenses to maintain membership program and serve and renew memberships) and other costs you identify that will occur each month/year without interruption.

After you set the definition, build a quick spreadsheet detailing the components of your organization’s burn-rate.  Next, cross-reference and compare your burn-rate to your approved annual budget. 

Planning Tip – It is interesting and useful as part of the analysis to list the monthly and annual burn-rate next to monthly and annual approved budget.  I like to sit these side-by-side on a dashboard.  The picture is enlightening and powerful.

The final step is to commit your burn-rate to memory so the number can be inserted quickly into cash flow updates, forecasts, scenario planning and used in messaging to the board, committees and staff.

One last key point, during a crisis, even burn-rates must be constantly reevaluated because of funding changes, supply chain disruptions and programs, grants and events being delayed, rescheduled, re-formatted or even canceled.