Finance & Accounting
Definition
Burn rate is the pace at which a company spends its cash — typically measured monthly — before it becomes cash-flow positive. It is one of the most critical metrics for any startup.
Gross burn rate is your total monthly cash expenditure. Net burn rate is the difference between cash spent and cash received — the actual rate at which you are depleting your reserves. If a company has $1M in the bank and a net burn rate of $100K/month, it has 10 months of runway. Burn rate is driven primarily by headcount (salaries) and is the central variable in any cash flow model. Investors track it closely and expect founders to know it precisely — not just roughly.
Burn rate determines how long you have to reach profitability or your next funding milestone. Running out of cash is the most common cause of startup failure — and it's almost always preventable with the right financial model and oversight. A financial advisor or fractional CFO can help you build a burn model that accurately forecasts your runway and identifies when to accelerate or cut.