Burn rate is the pace at which a business uses cash over a stated period, usually a month.
Gross burn tracks cash spending; net burn deducts operating cash receipts. Keep the definition explicit because businesses may include different cash outflows. Return to the business plan glossary for related terms.
Formula and calculation
Gross monthly burn = Cash outflows during period ÷ Months
Net monthly burn = (Cash outflows − Operating cash receipts) ÷ Months
Use comparable months and distinguish recurring operations from equipment purchases and financing. New equity or borrowing is not customer revenue and should not make operating burn appear lower. If you include capital expenditure or debt service in a total cash-burn measure, label it and avoid counting the same item twice.
Worked example: illustrative figures
Illustrative example: Pine Desk, a fictional software startup, spends $45,000 per month on payroll, hosting, rent and marketing and collects $15,000 from customers. All figures are illustrative USD or CAD amounts, consistently in one currency. There are no asset purchases, financing receipts or debt payments in this simplified month.
| Item | Amount |
|---|---|
| Monthly operating cash outflows | $45,000 |
| Monthly customer cash receipts | $15,000 |
| Gross monthly burn | $45,000 |
| Net monthly burn | $30,000 |
Gross burn is $45,000 ÷ 1 = $45,000 per month. Net burn is ($45,000 − $15,000) ÷ 1 = $30,000 per month. With $180,000 of unrestricted cash, a constant $30,000 net burn implies six months of simplified runway. A $60,000 funding receipt would increase the cash balance but would not reduce the $30,000 operating net burn.
How to interpret the result
A positive net burn means cash is being consumed under this sign convention. Zero means operating receipts equal the included outflows; a negative result means receipts exceed them. Monthly averages can hide a large tax payment, annual renewal or seasonal shortfall. Use a dated cash forecast as well as a trailing average.
Using this measure in a business plan
Forecast hiring dates, customer collections and one-time launch spending month by month. Show what spending could be deferred and what milestone the available cash is expected to fund. Reconcile burn to the cash-flow statement rather than substituting an accounting loss.
For help connecting assumptions to the financial statements, see our financial modelling services and business plan writing services.
Related glossary entries
Frequently asked questions
Is burn rate the same as a loss?
No. A loss measures revenue and expenses under accounting rules. Burn tracks cash, so collections, asset purchases and payment timing can make the amounts differ.
Does raising money lower burn rate?
Financing increases available cash but does not itself reduce operating cash consumption. Keep financing receipts outside the operating net-burn calculation.
Is a high burn rate always bad?
It depends on the spending plan, available cash and milestones. Assess whether spending is supportable and how results change if revenue arrives later than expected.