What is Burn Rate?
Your Burn Rate is the rate at which a company is spending its venture capital to finance overhead before generating positive cash flow from operations. It is a measure of negative cash flow.
In simple terms: It is how fast you are "burning" through the money in your bank account.
Gross Burn vs. Net Burn Founders often confuse these two, which can lead to dangerous miscalculations.
- Gross Burn: The total amount of operating costs you spend each month (Salaries + Rent + Servers + Marketing). It ignores any incoming money.
- Net Burn: The total amount of cash you lose each month after accounting for revenue. This is the more important number for calculating survival.
The Formula (Net Burn)
Beginning Cash Balance – Ending Cash Balance = Net Burn
Calculating Runway The burn rate is useless without context. Its primary purpose is to tell you your Runway—how much time you have left before you go bankrupt.
Current Cash in Bank ÷ Monthly Net Burn = Months of Runway
Example If you have £100,000 in the bank and you are losing £10,000 a month (Net Burn), you have 10 months of runway.
The Investor View Investors expect early-stage startups to burn cash—that is why they gave you funding. However, they watch the burn rate to ensure you aren't spending recklessly. A "high burn" is acceptable if you are growing fast (triple-digit growth). A high burn with flat growth is a death spiral.
Key Takeaway: Burn rate is the ticking clock of your startup. You must either become profitable or raise more money before the clock hits zero.
