# Monthly Burn Rate

## Quick Definition

The amount of cash a company spends each month net of revenue, determining how long capital will last.

## What is Monthly Burn Rate?

Monthly burn rate is how much cash your company spends (net of revenue) each month. If you start the month with $500K and end with $420K, your burn is $80K. It's the most fundamental measure of how fast you're consuming capital.

Burn rate directly determines runway: how long until you run out of money.

## Gross Burn vs Net Burn

Gross burn is total spending regardless of revenue. Net burn is spending minus revenue. A company spending $100K/month with $60K revenue has $100K gross burn but only $40K net burn.

Net burn is more relevant for runway calculations since revenue offsets expenses.

## How to Calculate Monthly Burn Rate Step by Step

**Step 1: Check your bank balance at the start and end of the month.** Exclude any fundraising deposits — you want to see operational cash flow only.

- Starting cash (March 1): $680,000  
- Ending cash (March 31): $595,000  
- Fundraising received in March: $0  
- **Monthly Burn = $680K - $595K = $85,000**

**Step 2: Verify with a bottom-up calculation.** Total your expenses and subtract revenue:

- Total expenses: $142,000  
- Revenue collected: $57,000  
- **Net Burn = $142K - $57K = $85,000** ✓ Matches

**Step 3: Calculate runway.**

- Cash remaining: $595,000  
- **Runway = $595K ÷ $85K = 7 months**

**Step 4: Use a 3-month rolling average.** Single months can be misleading (big annual payments, delayed revenue). Average the last 3 months:

- January burn: $72,000  
- February burn: $98,000 (annual insurance payment)  
- March burn: $85,000  
- **3-month average: $85,000** → **Runway: 7 months**

**Step 5: Model the "what if" scenarios.**

- If you hire 2 engineers ($25K/mo additional): burn jumps to $110K, runway drops to 5.4 months  
- If revenue grows 15% monthly: burn decreases each month, runway extends beyond 12 months  
- If you cut marketing by half ($10K saved): burn drops to $75K, runway extends to 7.9 months

## Common mistakes founders make:

- Measuring burn from the P&L instead of actual bank balance changes (timing differences matter)  
- Not including upcoming large expenses in the forecast (tax payments, annual contracts)  
- Ignoring revenue growth when calculating runway (but also be conservative — don't count revenue you haven't earned)  
- Waiting until runway is under 6 months to react (by then your options are limited)

## Managing Burn Rate

Track burn monthly and forecast forward. Know your runway at all times. Plan fundraising when you have 6+ months of runway remaining. Have a plan to cut burn if needed. Balance growth investment against cash preservation.

## Formula

Monthly Burn = Starting Cash - Ending Cash (for the month)

Or: Monthly Burn = Total Monthly Expenses - Total Monthly Revenue

Runway = Cash Balance ÷ Monthly Burn

## Example

Your SaaS startup tracks monthly cash:

- Starting cash: $500,000  
- Ending cash: $420,000  
- Monthly burn: $80,000

At this burn rate with $420K remaining:

Runway = $420,000 ÷ $80,000 = 5.25 months

Time to either raise, cut costs, or reach profitability.