Definition
Burn rate is the rate at which a company spends its cash reserves, typically measured monthly. It's the difference between cash in and cash out over a given period.
There are two types:
- Gross burn rate: Total monthly cash outflows (all expenses). If you spend $100K/month, your gross burn is $100K.
- Net burn rate: Monthly cash outflows minus monthly cash inflows. If you spend $100K and earn $60K, your net burn is $40K.
Why It Matters
Burn rate directly determines your runway — how many months you can operate before running out of cash. A burn rate that creeps up unnoticed is one of the most common ways growing businesses get into financial trouble.
The danger isn't usually a single large expense. It's the accumulation of small increases: a new SaaS tool here, a vendor price bump there, an extra hire that wasn't in the plan. Each one is reasonable in isolation, but together they can add 20-30% to your burn rate over a year.
How to Calculate It
Net Burn Rate = Total Cash Spent − Total Cash Received (for the month)
Gross Burn Rate = Total Cash Spent (for the month)
Runway = Cash on Hand / Net Burn Rate
Example: A startup has $600K in the bank. They spend $120K/month and bring in $40K in revenue. Net burn = $80K/month. Runway = $600K / $80K = 7.5 months. If revenue grows to $60K/month next quarter, net burn drops to $60K and runway extends to 10 months. That single variable — revenue growth — buys them almost three extra months.
Benchmarks
There is no universal “good” burn rate — it depends entirely on your stage and funding. Seed-stage startups typically burn $50K-$150K/month. Series A companies often run $150K-$500K/month. The number that actually matters is runway: most investors want to see at least 12-18 months of runway before they'll invest. Below 6 months, you're in the danger zone and should be cutting costs or raising urgently.
Common Mistakes
- Only tracking gross burn: Gross burn ignores revenue entirely. A company spending $200K/month with $180K in revenue has a very different situation than one spending $200K with zero revenue. Always track net burn alongside gross.
- Forgetting quarterly and annual expenses: Monthly burn calculations miss insurance renewals, tax payments, and annual software licenses. Annualize your expenses, then divide by 12 for a more accurate picture.
- Confusing P&L expenses with cash burn: Depreciation hits your P&L but not your bank account. A large equipment purchase hits your bank account immediately but amortizes slowly on the P&L. Burn rate tracks actual cash movement, not accounting entries.
How CentSight Helps
CentSight calculates your burn rate in real time by connecting to your QuickBooks and bank accounts. Instead of waiting for month-end to update a spreadsheet, you can ask: “What's our burn rate this month versus last month?” and get an instant answer. CentSight also alerts you when burn rate increases unexpectedly, so you can investigate before small changes compound into big problems.