What it means
Burn rate is how fast the company spends its cash, usually measured per month. It's the number that tells a founder how much the bank balance will fall.
There are two versions. Gross burn is everything going out. Net burn is what goes out less what comes in from customers, so it's the actual monthly drop in the bank balance from running the business.
Gross burn is total operating cash paid out in the month: payroll, rent, software, contractors and the rest. Net burn is gross burn minus cash received from customers and other operating sources. Money from a fundraise or a loan draw doesn't count as cash in, because it doesn't come from running the business.
Measure it from the bank, not the P&L. The P&L includes non-cash costs like stock comp and depreciation and smooths over timing like annual prepayments. Most investors expect a trailing three-month average of net burn. It's a metric, not a GAAP figure, so say which version and which window you used.
Over the last three months Acme paid out $150,000, $170,000 and $160,000, so gross burn averages $160,000. Customers paid in $50,000, $60,000 and $70,000, an average of $60,000. Net burn is $100,000 a month. If collections rise to $90,000 next quarter while spending stays flat, net burn falls to $70,000 without anyone cutting a cost.
Divide cash by net burn and you get runway. Net burn over net new ARR gives the burn multiple, which investors use to judge efficiency.
Why it matters. Net burn sets your runway and how much you need to raise. Investors will ask which one you mean, and over what window.
Try it with your numbers
Change any number. The working below updates as you type.
Gross burn = Cash out · Net burn = Cash out − Cash inEvery payment that left the bank: payroll, rent, vendors, tax.
Collections, not invoices sent. Leave out money raised.
Net burn
$100,000 / month
How it’s worked out
- 1Gross burnCash out = $160,000$160,000
- 2Net burn$160,000 − $60,000$100,000
Burn is a cash metric, not a GAAP figure. Take both numbers from the bank, not the P&L, and quote a trailing three-month average so one odd month doesn't mislead.
Common questions
Should I measure burn from the P&L or from cash?
From cash. Burn is about how fast the bank balance falls, and the P&L includes non-cash items like stock comp and depreciation while missing timing items like annual prepayments.
Which month do I quote?
Most investors expect a trailing three-month average of net burn. State the window you used.
Do loan repayments count in burn?
Interest is a cost of running the business, so it's in burn. Principal repayments are financing; most founders leave them out of burn and subtract scheduled repayments from cash when they work out runway. Say which you did.
Where it comes up
The glossary entries, founder guides and lessons on this site that use the term and link here.
- Net burnNet burn is a cash and runway metric, calculated as Operating and investing cash out − cash in, excluding financing inflows.Glossary
- Burn rate and runway: how to calculate them correctlyGross burn, net burn and months of runway, done the way an investor checks them: from cash, averaged, and with the hires you’ve already committed to.Guide · 3 min
- Contractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.Guide · 4 min
Read further
General information for US companies, not tax, legal or accounting advice. Check the specifics with a CPA before you act on them.