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Burn Rate
The rate at which a company spends its cash reserves, typically measured as net cash spent per month.
Formula
Gross Burn Rate = Total Monthly Operating Expenses
Net Burn Rate = Monthly Operating Expenses - Monthly Revenue
Runway (months) = Cash in Bank ÷ Net Burn Rate
Definition
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.
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.
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