What is burn rate?

Monthly burn rate is the amount of cash you're spending every month. These are outgoings or expenses like salaries, subscriptions, rent, etc. Moving money between accounts or inter-company transfers do not contribute to your cash burn as they aren't leaving your business.

The burn rate calculation uses the starting balance at the beginning of the time period and the closing (or current) balance at the end of the period. For example, a closing balance of $200,000 in January and closing balance of $100,000 in May means you burned ($200,000 - $100,000) / 4 = $25,000 on average every month.

burn rate = (start balance - end balance) / number of months

Manual entry is tiring. Connect your real bank accounts for a more accurate burn rate.

Burn rates are important for learning whether a business is spending too much. Venture-backed startups will raise large amounts of funding and investors expect to see a healthy amount of spend over time.

Gross burn

The gross burn rate is simply the average amount of spend on expenses made per month. That's it. For example, if you're spending $1,000 one month, $1,400 the next then $1,200 the month after, your gross burn rate is ($1,000 + $1,400 + $1,200) / 3 = $1,200. This is equivalent to the first calculation but uses spend rather than balances.

Net burn

If your end of month balances reflect the final amounts left in your bank accounts after any revenue or income, then the calculator above is showing you your net burn rate. Net burn is gross burn but includes incoming cash, so it may be slightly lower if you're generating revenue.

Start scheduling and authorising payments for a more controlled burn.

What is runway?

Runway is the number of months left from today until you hit a balance of zero. By knowing your cash burn rate and current balance, you can calculate runway using a simple formula.

months of runway = current balance / burn rate

Did you know you can track your runway in real time? Monitor metrics like this automagically.

Understanding a startup's runway is important for timing funding rounds and balancing efforts between increasing revenue and decreasing burn. A high company burn rate will reduce runway and lower the chances of survival.

Typical burn and runway for startups

The average startup will have around 12-18 months of runway between funding rounds, but this is very dependent on the industry, nature of the business and spend strategy. Average burn rates are harder to predict as companies obtain different amounts of capital.

Revenue, investments and expenses will change your burn rate. Get it organised for you.

High burn rates are not necessarily a bad thing. It should hopefully demonstrate a company is appropriately investing its capital in, for example, wages and marketing efforts that feed back into increasing revenue so that it can reach profitability sooner.