# Burn Rate

## Quick Definition

The rate at which a company spends its cash reserves, typically measured as net cash spent per month.

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Burn rate is the speed at which your company is spending cash - essentially how fast you're burning through your bank account. For most startups, this is measured monthly and represents your net cash outflow.

There are two types: Gross Burn (total monthly operating expenses) and Net Burn (monthly expenses minus revenue). Most founders and investors focus on Net Burn because it accounts for revenue offsetting some expenses.

Your burn rate directly determines your runway. If you have $500K in the bank and a $50K/month net burn, you have 10 months of runway. Understanding and managing burn rate is critical for survival, especially when fundraising takes longer than expected.

Many founders discover too late that they needed to start fundraising 6-9 months before running out of cash. Your burn rate is your clock — ignore it at your peril.

## How to Calculate Burn Rate Step by Step

**Step 1: Pull your bank statements for the last 3 months.** Log into Mercury, SVB, or whatever bank you use. Download monthly statements. You want actual cash out, not accrual-based expenses.

**Step 2: Calculate Gross Burn.** Add up every dollar that left your account each month: payroll, rent, software, contractors, marketing spend, AWS bills — everything. Do this for each of the last 3 months and average them.

- Month 1 outflows: $95,000  
- Month 2 outflows: $102,000  
- Month 3 outflows: $98,000  
- **Average Gross Burn = $98,333/mo**

**Step 3: Calculate Net Burn.** Subtract your revenue (cash actually received, not invoiced) from your Gross Burn.

- Average monthly revenue received: $35,000  
- **Net Burn = $98,333 - $35,000 = $63,333/mo**

**Step 4: Use a 3-month rolling average.** Single months are noisy — a big annual payment or a delayed customer check can distort the picture. Always use a 3-month average for planning purposes. Some founders use 6-month averages for board reporting.

**Step 5: Calculate your runway.** Divide current cash balance by Net Burn.

- Cash in bank: $520,000  
- **Runway = $520,000 ÷ $63,333 = 8.2 months**

At 8 months of runway, you should already be in active fundraising conversations.

**Common mistakes founders make:**

- Using accrual numbers instead of actual cash movements
- Forgetting to include quarterly or annual payments (insurance, software contracts) in the monthly average
- Ignoring upcoming one-time costs (hiring, equipment, deposits)
- Only tracking Gross Burn and ignoring Net Burn, which is what investors care about.

**Skip the spreadsheet.** [Futureproof](/content/compare/futureproof-vs-quickbooks/index.html) calculates burn rate automatically from your live bank data, updates daily, and alerts you when runway drops below your target threshold.

## Formula

- Gross Burn Rate = Total Monthly Operating Expenses  
- Net Burn Rate = Monthly Operating Expenses - Monthly Revenue  
- Runway (months) = Cash in Bank ÷ Net Burn Rate

## Example

Your startup's monthly situation:

- Payroll: $80,000  
- Software/Tools: $10,000  
- Office/Overhead: $15,000  
- Marketing: $20,000  
- Monthly Revenue: $40,000

**Gross Burn = $125,000/month**

**Net Burn = $125,000 - $40,000 = $85,000/month**

With $850K in the bank, you have 10 months of runway.

## Related Terms

[**Runway**  
The amount of time a company can continue operating at its current burn rate before running out of cash.  
Learn more](/content/terms/runway/index.html)

[**Gross Burn vs Net Burn**  
Gross burn is total monthly spending; net burn is spending minus revenue, showing actual monthly cash consumption.  
Learn more](/content/terms/gross-burn-vs-net-burn/index.html)

[**Monthly Burn Rate**  
The amount of cash a company spends each month net of revenue, determining how long capital will last.  
Learn more](/content/terms/monthly-burn-rate/index.html)