What is burn rate?
How is burn rate calculated?
Burn rate comes in two forms. Gross burn is all the cash a business spends in a month. Net burn subtracts the cash that comes in, so it captures the real monthly drop in the bank balance. Suppose a company spends 30,000 a month and takes in 10,000 in revenue. Gross burn is 30,000, but net burn is 30,000 − 10,000 = 20,000. Net burn is the number that matters for survival, because it is what actually erodes the cash reserves each month.
How does burn rate set your runway?
Runway is how long the cash lasts at the current pace, and it follows directly from net burn: cash on hand divided by monthly net burn. A company holding 120,000 in cash with a net burn of 20,000 has 120,000 ÷ 20,000 = 6 months of runway. Because runway assumes burn holds steady, it should be recalculated whenever costs or revenue change. A shortening runway is the clearest signal that a business needs to grow revenue, cut spending, or raise more capital before the cash runs out.
What changes burn rate?
Anything that moves cash in or out. Rising costs push gross burn up, while growing revenue reduces net burn even if spending is unchanged. Improving gross margin helps too, because more of each sale stays in the business to offset spending. This is why burn is best read alongside the profit and loss statement: the P&L shows where the money goes, and burn translates that into how long the cash will last.
Reading burn rate from an export
Burn is usually tracked from a profit and loss or cash export, such as a CSV from QuickBooks that lists spending and income by month. Rather than total the columns by hand, you can open the file and ask for monthly net burn, and then runway against a cash balance, in plain English. Paperswift runs the calculation in your browser, and only your column names and their types are sent when you ask, never the values in your rows.
Frequently asked questions
What is the difference between gross and net burn?+
Gross burn is the total cash a business spends in a month, ignoring any income. Net burn subtracts the cash coming in, so it shows the real monthly fall in the bank balance. Net burn is the figure that determines runway, while gross burn is useful for understanding the size of the cost base itself.
How do I calculate my runway?+
Divide your current cash balance by your monthly net burn. If you hold 120,000 in cash and burn 20,000 a month, runway is six months at the present pace. Runway assumes burn stays steady, so revisit it whenever spending or revenue shifts, and treat a shrinking runway as a prompt to plan well ahead.
Is a high burn rate always bad?+
Not necessarily. A high burn can be a deliberate choice to grow faster while capital is available, as long as it buys results and the runway is watched. It becomes dangerous when spending outpaces progress or when runway grows short without a funding or revenue plan. The judgement is about what the burn is actually achieving.
How can I reduce burn rate?+
Burn falls when you cut cash spending, grow cash coming in, or both. Trimming discretionary costs and improving gross margin lowers gross burn, while raising revenue reduces net burn directly. Because net burn nets spending against income, even modest revenue growth can extend runway meaningfully without any cuts to the underlying cost base.
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Start free todayLast updated · by Stefan