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Financial metrics glossary

Burn rate: definition, formula and example

Burn rate is the speed at which a company uses up its cash, usually measured per month. Gross burn is the total spent in the month; net burn is what was spent minus what came in — the amount by which the cash balance actually falls.

Updated

Formula

  • Gross burn = Total cash paid out in the month
  • Net burn = Cash paid out − Cash received
  • Net burn = Opening cash − Closing cash (excluding new financing)

Worked example

Sample

SAMPLE · Northbridge Analytics, September 2026

Northbridge Analytics, the fictional software company in the Financial Analyst's public sample. Net burn for each of the last 12 months — cash paid out minus cash received, financing excluded:

Month Net burn
Oct 2025 $107,433
Nov 2025 $81,685
Dec 2025 $78,095
Jan 2026 $70,841
Feb 2026 −$31,796
Mar 2026 $76,415
Apr 2026 $96,779
May 2026 $96,259
Jun 2026 $82,130
Jul 2026 $59,949
Aug 2026 $101,235
Sep 2026 $90,515
  1. Gross burn, September 2026 = direct costs $44,002 + operating expenses $181,300 = $225,301
  2. Net burn, September 2026 = cash $1,544,959 at the start − $1,454,444 at the end = $90,515
  3. Average net burn = $909,541 ÷ 12 months = $75,795

Net burn, 12-month average: $75,795 a month

This average is the burn the sample report prints. A single month swings with when annual contracts are paid — in a month when cash rises, net burn is below zero — so the report states burn as a twelve-month average.

How to read it

  • Net burn is the figure that drives runway. Gross burn shows the size of the cost base: what the company spends each month, whatever comes in.
  • Burn is a cash measure, not a profit measure. It differs from the operating loss when customers pay late or in advance, when bills are paid before or after they are booked, and for spending that is not an expense, such as equipment.
  • Read burn over several months. A single month can be distorted by an annual contract paid up front, an annual bill, or a large invoice collected late.
  • Money raised from investors or lenders increases cash but does not reduce burn: it extends runway, and burn is measured without it.

Original research: Financial benchmarks for small US public companies, by industry →

Where it shows up in the monthly management report

The report's cover gives the month's revenue, gross profit, operating result and ending cash; the P&L summary sets the operating result against the plan.

The “Cash and working capital” page carries the 13-week cash outlook: the opening and closing balance, the low point and the week it falls in, and each week's receipts, payments and ending cash.

  • Open the sample workspace — a fictional company's books, worked by the Financial Analyst, with its monthly report. No signup.
  • The Financial Analyst — what it reads from your accounting system, what the report contains and what it costs.

Frequently asked questions

What is the difference between gross burn and net burn?

Gross burn is everything the company spends in a month. Net burn subtracts the cash that came in, so it equals the fall in the cash balance. A company with large revenue can have a high gross burn and a low net burn.

Is burn rate the same as operating loss?

Not exactly. The operating result records revenue when it is earned and costs when they are incurred; burn records cash when it moves. They match only when every sale is collected and every cost is paid in the same month.

How can a company reduce its burn rate?

Spend less or collect more: cut or defer costs, raise prices, or get paid sooner. Shorter payment terms and prompt follow-up on overdue invoices lower net burn without changing the P&L.