Burn rate

Direct answer

For this review, define gross burn, net burn, and runway, then show how burn connects to hiring, fundraising timing, and survival.

Why this question comes up

Founders know runway matters but struggle to decide whether burn is normal, dangerous, or growth-supporting. This guide turns that concern into a review that can be repeated with a defined period, consistent inputs, and a visible trail back to the records.

Records to gather

• Bank and credit-card statements for every operating account, month by month
• Payroll registers, including employer taxes and contractor payments
• Recurring vendor bills: software, rent, insurance, professional services
• Any financing inflows — equity, loans, grants — kept separate from operating activity
• One-time items: deposits, annual prepayments, severance, legal settlements

Review workflow

1. Choose gross or net, and say which. Gross burn is total cash out. Net burn is cash out minus cash in. The two can differ by an order of magnitude for a business with revenue, so a burn figure without the qualifier is unusable.
2. Strip financing from operations. A funding round landing mid-month makes net burn look negative. Exclude equity, debt draws, and grants from the operating figure.
3. Use at least three months. A single month is distorted by annual insurance, quarterly tax, or a large one-off vendor payment. Take a trailing three-month average and note what you smoothed.
4. Separate committed from discretionary. Payroll and rent continue whether or not you act. Marketing and contractor spend can be cut in weeks. Runway math depends on which is which.
5. Reconcile to the bank. The burn figure should tie to the actual change in cash balance over the period, less financing. If it does not, something is misclassified.

What a useful answer should include

• Gross and net burn stated separately, with the period and entity named
• The trailing average used, and which months were excluded or smoothed
• Financing inflows shown on their own line, never netted into operating burn
• Committed versus discretionary spend split, since only one is compressible
• A reconciliation to the actual cash movement over the same period
• The largest three cost drivers by dollar change, not just the total

Common failure modes

• Reporting net burn as gross. A business collecting $80k against $200k of spend has a $200k gross burn and a $120k net burn. Quoting the smaller number to a lender or board is a material misstatement.
• Letting a funding round hide the burn. Cash went up, so burn looks fine — until the next month.
• Averaging across a structural change. A team that doubled in March makes a January–June average meaningless for forecasting July.
• Ignoring accrued-but-unpaid costs. Deferring vendor payments lowers cash burn without lowering the actual cost. The obligation is still there.

Community context

The linked community posts show why people search for this topic and which parts create confusion in practice. They are anecdotal. Use the reference sources and your organization’s policies for accounting treatment, tax, compliance, and final decisions.