Burn Rate

TL;DR

The rate at which a company spends cash, typically reported monthly. Reported as either gross burn or net burn.

Burn rate measures monthly cash consumption. Gross burn is total monthly cash outflow; net burn subtracts cash inflow (revenue, financing). Net burn is the more cash-strategic metric — it's what determines runway given the current cash balance.

Burn rate is meaningful only relative to cash on hand and burn multiple. A $1M monthly burn is exceptional for a $5M ARR company and dangerous for a $500K ARR company. Investors look at burn rate, runway, and burn multiple together.

Formula

Burn Rate = (Cash at Start − Cash at End) ÷ Months in Period

• Cash at Start — Bank balance at the start of the period
• Cash at End — Bank balance at the end of the period
• Months in Period — Number of months in the period (typically 3 for trailing-quarter view)

Trailing-3-month burn smooths out lumpy cash items (annual prepayments, one-time vendor bills).

Worked example

Cash dropped from $4.2M (March 31) to $3.0M (June 30) — 3 months. Burn rate = $1.2M ÷ 3 = $400k/mo. Combined with $4.5M cash today, runway = $4.5M ÷ $400k = 11.3 months.

Common pitfalls

• Reporting gross and net burn interchangeably.
• Letting burn drift up without expanding revenue commensurately.
• Failing to model burn under different revenue scenarios.

When this shows up in a pitch deck

Burn shows up on the Financials slide and drives the Use of Funds discussion.

See Burn Rate in context

Burn Rate shows up most often in these scoring rubrics and investor profiles — jump straight to who cares about it and how to pitch them.

In VC frameworks

• Family Office — pitch deck framework

Related terms

• Net Burn — Monthly cash outflow minus cash inflow — the actual rate at which the cash balance is depleted.
• Gross Burn — Total monthly operating cash outflow before subtracting any revenue or financing inflow.
• Runway — The number of months the current cash balance will last at the current net burn rate before the company runs out of money.
• Burn Multiple — Net new ARR divided by net burn — the dollars of capital consumed per dollar of new ARR generated.
• Rule of 40 — A SaaS health benchmark: revenue growth rate plus profit margin should sum to at least 40%.

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