Financial Glossary
Cash burn
Cash burn is the total amount of cash a company consumes over a defined period -- usually measured monthly -- to fund operations, invest in growth, and service obligations. Gross cash burn counts all cash outflows; net cash burn subtracts operating cash inflows such as revenue and collections to show the actual depletion of reserves. For pre-revenue or early-revenue companies, cash burn is the primary financial constraint because it determines the finite window in which the business must reach sustainability or raise additional capital. For established businesses, elevated cash burn relative to revenue signals a profitability problem or an investment cycle that needs justification.
Problem & Application
A hospitality startup spends $90,000 per month on payroll, $15,000 on software and infrastructure, $8,000 on marketing, and $7,000 on office and miscellaneous -- totaling $120,000 in gross monthly burn. Against $45,000 in monthly revenue, net cash burn is $75,000. The burn multiple -- net burn divided by net new monthly recurring revenue of $6,000 -- is 12.5x, meaning the company spends $12.50 to generate each new dollar of monthly recurring revenue. Investors increasingly view a burn multiple above 2x with skepticism for growth-stage companies; above 5x suggests the go-to-market model is inefficient. To reduce net burn without cutting headcount, the team can accelerate collections (reducing the gap between revenue recognition and cash receipt), negotiate extended payment terms with major vendors, or front-load marketing spend into periods with the highest conversion rates and pull back during low-conversion windows.
In Short
Cash burn is a crucial financial metric for startups and high-growth companies. Managing it effectively ensures business longevity and strengthens investor confidence in a company’s ability to scale.