What is burn rate?
Burn rate measures negative cash flow over time. It is most often used by startups that are investing ahead of revenue, but any business with falling cash can track it.
Gross vs net burn
- Gross burn: total cash spent per month on operating costs (salaries, rent, software, marketing).
- Net burn: cash spent minus cash received. Net burn = Cash out − Cash in.
Net burn is usually the more useful figure.
Runway
Runway (months) = Cash balance ÷ Net monthly burn
Example
A startup has $600,000 in the bank. It spends $90,000 a month and collects $40,000 a month in revenue.
- Gross burn = $90,000
- Net burn = 90,000 − 40,000 = $50,000 a month
- Runway = 600,000 ÷ 50,000 = 12 months
How to reduce burn
- Prioritise spending that directly drives revenue.
- Renegotiate or cancel unused subscriptions.
- Speed up collections and shorten payment terms.
- Delay non-essential hiring.
- Review pricing and margins.
Why it matters
Running out of cash is one of the most common reasons startups fail. Investors expect founders to know their burn and runway and to start fundraising well before cash gets low, often with at least 6 to 9 months of runway left.