Entrepreneurship and Small Business (ESB) Certification Practice Exam

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Which term describes the amount of cash a company is spending every month?

Cash burn rate
Net revenue
Operating budget
Profit margin

The correct answer is: Cash burn rate

The term that accurately describes the amount of cash a company is spending every month is known as the cash burn rate. This metric is particularly important for startups and businesses that are still in the early stages of development and may not yet be operating at a profit. Understanding the cash burn rate helps entrepreneurs gauge how long their available cash will last, which is crucial for managing finances and making informed business decisions. In contrast, net revenue refers to the total income generated from sales after deducting returns, allowances, and discounts. It does not reflect expenditure and therefore wouldn't capture the cash outflow aspect. The operating budget pertains to a company's projected revenue and expenses over a specific period but does not specifically quantify monthly cash outflows. Profit margin indicates the percentage of revenue that exceeds total costs, highlighting profitability rather than cash flow dynamics. By focusing on the cash burn rate, businesses can effectively monitor their cash flow, plan for funding needs, and ensure they maintain financial health as they grow.