A metric most relevant for early-stage or unprofitable businesses: how fast cash is leaving the bank account. Paired with runway, it tells you how long the business can operate before needing more cash.
Burn rate - the rate at which a business is spending cash, typically quoted as a monthly figure. Gross burn = total cash spent. Net burn = total cash spent minus cash collected.
How to calculate it
Net burn = Cash spent per month − Cash collected per month
For most businesses, net burn is the useful number - it tells you the cash impact on your bank account.
Common uses
- Runway calculation - cash ÷ net burn = months until cash runs out
- Investor conversations - the standard cash measurement for early-stage businesses
- Cost discipline - rising burn signals spending is outrunning revenue
Watch out
Burn rate is most meaningful for unprofitable or growth-stage businesses. Profitable businesses have negative burn (positive cash flow); they don't need the metric.
Don't conflate burn with profit loss. A business can have positive profit and negative cash flow (high burn) because of working capital tied up or capital expenses. Cash flow ≠ profit.