What Is Burn Rate and Why It Matters to Your Startup

Whether you’re bootstrapping or VC-backed, burn rate is one of the most critical financial metrics for startups. It can determine how much time you have to build, iterate, and grow—before the money runs out.

This article breaks down what burn rate is, how to calculate it, and why it’s a number every founder should monitor like a hawk.

What Is Burn Rate?

Burn rate is the rate at which your company is spending cash—usually measured on a monthly basis.

There are two types:

●     Gross Burn Rate: Total operating expenses per month

●     Net Burn Rate: Net loss per month (Expenses – Revenue)

Example:

If your startup is spending $50,000 per month and generating $10,000 in revenue:

●     Gross Burn = $50,000

●     Net Burn = $40,000

Why Burn Rate Is Important

1.    Cash Runway Clarity: It tells you how long your cash will last.

2.    Investor Confidence: Investors evaluate burn to understand sustainability.

3.    Financial Discipline: Forces you to prioritize spending and cut unnecessary costs.

4.    Scenario Planning: Helps in modeling future funding needs and hiring plans.

How to Calculate Your Cash Runway

Runway = Cash in Bank ÷ Net Burn Rate

✏️ Example:

You have $240,000 in the bank. Your net burn is $40,000/month. ➡️ Runway = 240,000 / 40,000 = 6 months

This means you have 6 months before you run out of cash if nothing changes.

Visual: Burn Rate vs. Runway

The steeper your burn, the shorter your runway.

What to Include in Your Burn Rate

Here’s what typically goes into the burn rate:

Category	Included in Burn?
Salaries (incl. founders)	✅ Yes
Office rent or remote ops	✅ Yes
SaaS tools, hosting	✅ Yes
Marketing & ads	✅ Yes
Equipment & contractors	✅ Yes
Loan repayments	❌ No (excluded from operational burn)

Tips to Manage Burn Smartly

●     Use rolling 3-month averages to smooth out spikes

●     Track monthly trends (spending vs. revenue)

●     Model multiple burn scenarios (aggressive growth vs. lean operations)

●     Have a 12-month forecast to monitor when burn may increase unexpectedly

Common Mistakes Founders Make

Mistake	Why It Hurts
Ignoring gross burn	Gives false sense of profitability
Counting bookings as revenue	Misrepresents true cash flow
Not including founder salary	Skews the true cost of operations
Relying only on bank balance	Misses liabilities and future commitments

Tools to Track Burn Rate

●     Spreadsheet Template (I can share one if you want!)

●     QuickBooks / Xero + Budgeting plugins

Startup-focused tools like Finmark, Pry, or Mosaic

Founder Anecdote

“We were burning $70k/month without realizing how fast that runway was shrinking. Once we tracked our net burn tightly, we restructured our team, cut SaaS bloat, and extended our runway by 4 months—just by optimizing.” 

— Series A Founder, B2B SaaS Startup

Burn Rate Tracking Template (Free)

Want a simple downloadable spreadsheet that calculates burn, tracks monthly trends, and estimates runway?

📥 Download Burn Rate Tracker (Excel)

Final Thoughts

Burn rate isn’t just an investor buzzword—it’s your financial pulse as a startup. Monitor it. Forecast it. And take control before the runway runs out.