Burn Rate
Last reviewed 2026-05-11 by Asad Ali, Founder & CEO
The rate at which a company spends cash monthly.
Burn rate measures how quickly a business is spending its cash reserves, typically expressed as a monthly dollar amount. Gross burn rate is total monthly cash outflows (payroll, rent, software, marketing, etc.), while net burn rate subtracts incoming revenue and represents the actual rate of cash depletion. Startups, pre-profit companies, and any business operating during a downturn track burn rate closely to determine how long their funding will last. The standard convention is to average the last three months of cash flow rather than a single month, because one-time payments (annual insurance, quarterly tax payments, equipment purchases) can distort a single-month figure. Investors typically expect a path to either profitability or follow-on funding before runway drops below six months — fundraising at three months of cash on hand puts the company in a weak negotiating position and often results in down rounds or unfavorable terms.
Formula
Gross Burn Rate = Total Monthly Cash Outflows. Net Burn Rate = Gross Burn − Monthly Revenue. Use a 3-month rolling average to smooth out lumpy expenses.Example
A SaaS startup ended Q1 with $300,000 in the bank. Over the last three months it averaged $50,000 in operating expenses (salaries $35,000, rent $5,000, software $4,000, marketing $6,000) and $20,000 in monthly revenue. Gross burn = $50,000. Net burn = $50,000 − $20,000 = $30,000. At the current pace, runway = $300,000 ÷ $30,000 = 10 months. If the team adds two engineers at $8,000 each fully loaded, monthly expenses rise to $66,000 and net burn jumps to $46,000 — cutting runway to roughly 6.5 months.
Why It Matters for Your Business
If you don't know your burn rate, you can't predict when you'll run out of cash — running out of cash is the number-one cause of small-business failure cited by the SBA.
Practical Tips
- •Calculate burn rate monthly using a 3-month rolling average — single-month figures get distorted by annual or quarterly lump-sum payments
- •Track the trend, not just the absolute number — rising burn without proportional revenue growth is the earliest warning sign of trouble
- •Distinguish must-have burn (payroll, rent, hosting) from discretionary burn (paid ads, contractors, travel) so you know what you could cut in 30 days if needed
- •Begin fundraising conversations when runway hits 9–12 months — closing a round typically takes 3–6 months, and weakness shows in your valuation when you wait
Common Questions About Burn Rate
How is burn rate calculated?
The formula is: Gross Burn Rate = Total Monthly Cash Outflows. Net Burn Rate = Gross Burn − Monthly Revenue. Use a 3-month rolling average to smooth out lumpy expenses.. See the worked example below for a step-by-step calculation using realistic numbers.
What is an example of burn rate?
A SaaS startup ended Q1 with $300,000 in the bank. Over the last three months it averaged $50,000 in operating expenses (salaries $35,000, rent $5,000, software $4,000, marketing $6,000) and $20,000 in monthly revenue. Gross burn = $50,000. Net burn = $50,000 − $20,000 = $30,000. At the current pace, runway = $300,000 ÷ $30,000 = 10 months. If the team adds two engineers at $8,000 each fully loaded, monthly expenses rise to $66,000 and net burn jumps to $46,000 — cutting runway to roughly 6.5 months.
Why does burn rate matter for my business?
If you don't know your burn rate, you can't predict when you'll run out of cash — running out of cash is the number-one cause of small-business failure cited by the SBA.
How does FiscalInsights help with burn rate?
FiscalInsights tracks burn rate automatically as part of its AI bookkeeping workflow. Connect your bank accounts and the platform handles categorization, reconciliation, and reporting without manual entry.
Related Terms
More Cash-flow Terms
Cash Flow
The movement of money in and out of a business.
Cash Flow Forecast
A projection of expected cash inflows and outflows.
Cash Flow Statement
A financial statement showing cash movements from operations, investing, and financing.
Free Cash Flow
Cash from operations minus capital expenditures.
Operating Cash Flow
Cash generated from core business operations.
Related Cash-flow Guides
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