Burn rate is the net cash an unprofitable company uses each month. If a startup says its burn is $100,000, it is spending $100,000 more than it brings in every month. That number is not an accounting detail to ignore: it tells founders, employees, and investors how quickly the cash in the bank is disappearing. section 18.1 section 18.0
Burn is not simply expenses. Gross burn may mean total operating expenses, but net burn—usually shortened to burn—is total expenses minus revenue. A company can lower burn in only two basic ways: bring in more revenue or cut expenses. section 18.2 section 18.4
A quick runway check
With $4 million in the bank and a $250,000 monthly burn, the company has 16 months of runway: cash divided by monthly burn. Runway is the time before cash reserves are exhausted. The calculation turns a scary balance into a deadline for reaching a milestone, reducing spending, or closing financing. section 18.2 section 18.1
Use the figure to see the cash-divided-by-monthly-burn calculation that converts a bank balance into months of runway. section 18.2
Treat burn rate as an operating warning light:
- Know the monthly net burn and cash balance at all times; investors will ask for both. section 18.4
- Plan financing before runway is short; a post-financing target of at least 18 months allows operating time plus time to raise again. section 18.2
- Examine staffing closely, since employee costs—especially engineering—can dominate technology-company burn. section 18.2
- Use variable expenses thoughtfully: contractors can be easier to cut than permanent roles if conditions worsen. section 18.2
Getting burn to zero means cash-flow break-even; going below zero means cash-flow positive. That is not necessarily the same as profitability. A startup can be profitable on paper yet still lack cash if customers have not paid, which makes collection timing and payroll-critical cash especially important. section 19.1
When revenue fails to arrive and expenses stay high, burn becomes a signal to find the mismatch fast. The response may involve reworking a product, reconsidering expansion, pivoting, or cutting staffing while preserving essential functions. The moral is blunt: do not discover that runway ended after it is too late to act. section 29.0 section 29.2.1
