Burn rate is how fast a company spends its cash, usually stated per month. Gross burn is all the cash going out in a month; net burn is cash out minus cash in, which is how much the bank balance actually falls.
Burn rate matters because it sets runway: how many months the company can keep going before the money runs out, at the current pace.
The burn rate formula
Gross burn = total cash spent in the month
Net burn = cash spent − cash received in the month
= cash at the start − cash at the end
(leaving out new funding and loan proceeds)
Runway (months) = cash in the bank / average monthly net burnAverage net burn over the last three months rather than taking one month. Payroll dates, annual software bills and quarterly taxes make single months noisy.
A worked burn rate example
A startup's last three months, from the bank accounts:
| Month | Cash in | Cash out | Net burn |
|---|---|---|---|
| July | $62,000 | $118,000 | $56,000 |
| August | $65,000 | $121,000 | $56,000 |
| September | $70,000 | $130,000 | $60,000 |
| Average | $57,333 |
It has $860,000 in the bank on 30 September.
Gross burn (September) = $130,000 Average net burn = (56,000 + 56,000 + 60,000) / 3 = $57,333 Runway = 860,000 / 57,333 = 15.0 months
At this pace the money runs out around the end of December next year. Now add two engineers at $12,000 a month each, fully loaded: net burn rises to about $81,000 and runway drops to about 10.6 months. That is the calculation to run before every hiring decision, not after.
Burn rate calculator
Put each month's cash in and cash out in columns B and C, starting at row 2, and today's cash in F1:
Net burn for the month (D2): =C2-B2 Average net burn (F2): =AVERAGE(D2:D4) Runway in months (F3): =F1/F2 Runway with a planned change: =F1/(F2+F4) (F4 = added monthly cost)
If F2 comes out negative, the business is taking in more cash than it spends, and runway doesn't apply.
Common burn rate mistakes
- Using profit and loss instead of cash. An annual prepayment from a customer is cash today but revenue over twelve months; a big equipment purchase is cash today but depreciation later. Burn is about the bank balance. If your books are on accrual, use a cash-basis report or the bank accounts themselves.
- Counting funding as cash in. A new round or loan extends runway but isn't part of the burn. Leave it out of the calculation and add it to cash in the bank.
- Taking one month. A month with no payroll run or a big annual renewal gives a runway that's off by months.
- Forgetting credit cards and unpaid bills. A balance owed on a card or to suppliers is cash already spent.
- Ignoring planned changes. Runway at today's burn is a floor for spending, not a plan. Model the hires you have already approved.
Related metrics
- Burn multiple: net burn divided by net new ARR, how efficiently the burn buys growth.
- Rule of 40: growth plus profit margin, the trade-off burn is funding.
- CAC payback period: how long acquisition spend takes to come back as gross profit.
For the monthly profit and loss behind these numbers, see the profit and loss report template.
Get burn and runway automatically every week
The QuickBooks cash and runway skill does the calculation every Monday with fixed rules: it adds up the balances of your QuickBooks bank accounts (listing credit cards separately), reads the cash-basis net income of the last three full months, averages the losses as net burn, and divides cash by that average for months of runway. It warns when nothing has been booked for over a week, since a stale bank feed makes runway look better than it is. If the three months show a profit, it reports the business as cash-flow positive instead.
To see where the money goes, QuickBooks expenses by category shows month-to-date spend by account and flags categories running hot.
Questions
What is the difference between gross burn and net burn?
Gross burn is everything you spend in a month. Net burn is what you spend minus the cash you take in, so it is the amount your bank balance actually falls. Runway is calculated from net burn.
Is burn rate monthly?
Almost always. Founders and investors quote burn per month, and runway in months, so the two can be compared directly.
Does a profitable company have a burn rate?
It still has a gross burn, since it spends money every month, but its net burn is zero or negative. Say it is cash-flow positive instead of quoting a runway.
How many months of runway should a startup have?
There is no universal number, but runway should comfortably cover the time it takes to raise the next round or reach profitability, since fundraising usually takes months. Recalculate it whenever hiring plans change.