In startup finance, burn rate describes the rate at which a company spends its available cash before becoming profitable.
The term is used mainly for young companies whose expenses exceed their revenue. A startup’s gross burn is its total monthly spending, while net burn subtracts the revenue received during that period. For example, a company spending $200,000 and earning $50,000 in one month has a net burn of $150,000.
Burn rate is closely connected to runway, which estimates how many months a company can continue operating before its cash runs out. A business with $1.2 million in cash and a monthly net burn of $100,000 has roughly 12 months of runway. Founders and investors monitor these figures when planning fundraising, hiring, and product development.
Burn rate is sometimes confused with cash flow. Cash flow measures money moving in and out, whereas burn rate focuses on the pace of cash consumption, especially during an unprofitable period.