Complete Definition
Burn rate is the speed at which a startup uses its cash reserves before generating positive cash flow. It's a critical metric for understanding how long your company can survive without additional funding (runway).
Types of Burn Rate
**Gross Burn Rate** Total cash spent per month, regardless of revenue. Gross Burn = Total Monthly Operating Expenses
**Net Burn Rate** Cash spent minus cash earned. Net Burn = Monthly Expenses - Monthly Revenue
Why Burn Rate Matters
- Determines runway (months until cash runs out) - Influences fundraising timing - Shows operational efficiency - Helps with budget planning - Signals financial health to investors
Calculating Runway
Runway (months) = Cash on Hand ÷ Net Monthly Burn Rate
Managing Burn Rate
- Track weekly/monthly cash position - Maintain 12-18 months runway minimum - Start fundraising with 6+ months runway - Identify "default alive" vs "default dead" status - Have contingency plans for different scenarios