What Is Burn Rate?
Burn rate tells you how fast you're spending money. Critical for startups — and useful for any business watching its cash.
Key Takeaways
- Burn rate is the amount of cash a business spends per month, typically net of revenue.
- Gross burn is total monthly spend; net burn is monthly spend minus revenue.
- Burn rate directly determines your runway — how long until you run out of cash.
Gross burn vs net burn
Gross burn rate is your total monthly cash outflow — every cost paid. Net burn rate is gross burn minus revenue received. If you spend £80,000 per month and bring in £30,000, your net burn is £50,000. Net burn is the more meaningful number for understanding how quickly you're consuming reserves.
Why every business should track it
Burn rate is usually discussed in a startup context, but it's relevant to any business going through a period where outflows exceed inflows — a seasonal business in its off-peak, a business scaling rapidly before revenue catches up, or one navigating a cash-flow gap.
What a high burn rate signals
A high burn rate is not necessarily bad — it may be intentional investment in growth. It becomes dangerous when it is not intentional, when it is higher than planned, or when the revenue growth needed to justify it is not materialising. Review your burn rate monthly and compare it to your cash balance and forecast.
How to reduce burn
Identify your largest cost categories. Question each one: is this generating revenue? Postpone discretionary spending. Accelerate customer collections. Consider whether any fixed costs can be made variable. Even a 15% reduction in burn extends runway meaningfully.