Monthly Burn Rate

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.

Further Reading

From Burn To Build: How Smart Founders Flip The Script On Startup Survival