What is a Run Rate?
Run Rate stands for future predictions about the startup’s financial performance based on current financial information the startup already knows. This can include the expected financial performance of the company they will achieve if they continue doing everything in the way they are currently done, or execute the plans they already have. The run rate is a good indicator of a startup’s future, and a useful method to decide if there are any changes to be made.
It can be calculated by taking the profits of the past year and multiplying or dividing it by the length of the time period the startup needs the prediction for.
An example of Run Rate
If when a startup has a revenue of $100.000 in the first quarter (Q1), the CFO can project that based on this financial information, for the whole financial year the company will have a run rate of $400.000 ($100.000 x 4).