If you work at a startup, a scale-up, or any business that isn’t yet comfortably profitable, “burn rate” is a phrase you’ll hear in nearly every board update — often in a slightly tense voice. It sounds dramatic, and in a way it is: it’s a measure of how fast the company is consuming its cash reserves. But the math is simple, and once you can calculate it you can answer the question that actually matters — how long do we have?
Net burn is what actually leaves the bank; ÷ into cash = runway — Hover any part for detail.
What burn rate means
Burn rate is the rate at which a company spends its cash, usually expressed per month. The name is vivid on purpose: the company is “burning” through the money in the bank. It matters most for businesses that are spending more than they earn — which describes almost every young company deliberately investing in growth before profits arrive.
There are two versions, and mixing them up causes confusion:
- Gross burn — the total cash you spend each month (salaries, rent, software, marketing — everything going out).
- Net burn — spend minus the revenue coming in. This is the real monthly drain on your bank balance.
Example. A company spends $500,000 a month and earns $300,000 in revenue. Its gross burn is $500k; its net burn is $200k. The $200k net figure is what actually leaves the bank each month, so it’s the one that determines survival.
From burn to runway
Burn rate on its own is only half the picture. Pair it with cash in the bank and you get the number everyone actually cares about — runway:
Runway (months) = Cash in the bank ÷ Net burn per month
With $2,000,000 in the bank and $200,000 net burn, the company has 10 months of runway — ten months before the cash hits zero, unless something changes (more revenue, less spend, or new funding). Runway is a countdown, which is exactly why it drives urgent decisions. (Our Cash Flow, Runway & Burn Rate module walks through this with an interactive exercise.)
Key point: a high burn rate isn’t automatically bad — it depends entirely on runway and what the burn is buying. Burning $500k/month with three years of runway and fast growth is very different from burning $50k/month with two months left.
Why burn rate isn’t the same as being unprofitable
It’s worth connecting this to a concept people constantly conflate. A company can be profitable on paper and still burn cash if customers pay slowly — because profit and cash aren’t the same thing. Burn rate is strictly about cash leaving the building, not accounting profit. That’s why finance teams watch burn and runway separately from the P&L: the P&L tells you if the model works eventually; burn and runway tell you if you survive long enough to get there.
Reading a changing burn rate
What a change in burn rate signals depends on direction and context:
- Rising burn with rising growth — often fine; the company is investing to scale, and revenue is following.
- Rising burn with flat growth — a warning; spend is climbing without results, and runway is shrinking for nothing.
- Falling burn — usually a deliberate move to extend runway (cutting costs), common when fundraising is hard or profitability is the new goal. This is the whole logic behind the efficiency era of cost-cutting.
How to use the term
- “What’s our net burn, and how much runway does that give us?” (the two questions that matter)
- “Gross burn is $600k, but net burn is only $250k thanks to revenue.” (distinguishing the two)
- “We’re cutting burn to extend runway into next year.” (buying time)
- “High burn is fine here — we’ve got 30 months of runway and we’re tripling revenue.” (context matters)
Master burn rate and runway and you can cut through a lot of startup noise. When someone quotes a scary-sounding burn number, the calm follow-up — “and how much runway is that?” — tells you everything about whether it’s a problem or a plan.
Related reading: Cash Flow vs Profit · Revenue vs Profit · Margin Compression