Burn rate
The net amount of cash the business loses each month — money out minus money in.
Burn rate is the net amount of cash your business loses in a month: everything that goes out, minus everything that comes in. Gross burn is only the outgoing side, which is why it always looks worse and is almost never the number you should be steering by. Net burn is the one that shortens your runway.
The reason it deserves its own name, rather than being filed under "costs", is that it is a rate. A cost is a fact about the past. A rate is a claim about the future, and it can change direction faster than most people expect. Two months of a large new retainer can move a business from losing $12,000 a month to breaking even without a single expense being cut. Equally, three small subscriptions, one contractor and a quiet office renewal can add $6,000 a month that nobody consciously approved.
The useful discipline is separating fixed burn from chosen burn. Fixed burn is salaries, rent, the tooling you genuinely cannot run without. Chosen burn is everything you renewed by default. Most businesses that feel starved of cash are not overspending on the fixed side; they are carrying nine months of chosen burn that no longer buys anything.
A worked example: monthly outgoings of $28,000 against $16,000 of collected revenue is a net burn of $12,000. Cancelling four unused tools at $400 each and moving one contractor from retainer to project work takes it to $9,000 — which, on $180,000 of cash, is the difference between fifteen months of runway and twenty.
Also known as
- net burn
- monthly burn
Relevant for
- Founders
- Track net burn, not gross — gross burn makes every month look like an emergency and hides which costs you actually chose.
- Business owners
- Most of the cash pressure in an established practice is chosen burn nobody re-approved, not the payroll everyone worries about.