Burn rate

Direct answer

Burn rate measures monthly cash use. Gross burn is cash paid out for operations; net burn subtracts operating cash received. State whether major investing payments are included, show loans and equity funding separately, and use available cash divided by expected net burn only as a rough runway estimate when net burn is positive.

For a quick balance-change estimate before reviewing the full cash movement, use the startup burn rate and runway calculator. Its estimate needs adjustment when financing or other exceptional cash movements occurred during the period.

Why this question comes up

The same spending level can be manageable or urgent depending on incoming cash and available reserves. Compare like periods and cash accounts, then adjust the forward view for known changes in staffing, receipts, or one-off payments.

Records to gather

• Bank statements and payment records for operating accounts, month by month
• Payroll registers, including employer taxes and contractor payments
• Recurring vendor bills: software, rent, insurance, professional services
• Equity and debt funding, shown separately from operating receipts; identify grants by their actual cash-flow treatment
• One-time items: deposits, annual prepayments, severance, legal settlements

Review workflow

1. Label gross and net. Gross burn counts operating cash outflows; net burn subtracts operating cash receipts. State the treatment of taxes, debt service, and capital spending.
2. Separate funding. Equity proceeds and debt draws increase cash but do not reduce operating burn. Show them on their own line.
3. Choose a useful period. Compare monthly results and use a trailing average only if it still represents the current business. Show one-offs and structural changes rather than smoothing them away.
4. Distinguish committed and adjustable payments. Note contract terms and lead time before assuming any cost can be reduced for a runway scenario.
5. Reconcile total cash movement. Operating burn alone will not equal the change in bank balances when investing, financing, transfers, or restricted cash are present. Show those items separately.

What a useful answer should include

• Gross and net burn stated separately, with the period and entity named
• The trailing period used, and any one-offs or changed spending plans
• Financing inflows shown on their own line, not netted into operating burn
• Committed versus adjustable spend, with timing to change it
• A bridge from burn to actual cash movement over the same period
• The largest three cost drivers by dollar change, not just the total

Common failure modes

• Leaving the definition unstated. A business collecting $80k against $200k of operating cash payments has $200k gross burn and $120k net burn. Label which number is being reported.
• 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 a weak basis for forecasting July.
• Ignoring accrued-but-unpaid costs. Deferring vendor payments lowers cash burn without lowering the actual cost. The obligation is still there.