Financial Glossary
Cash burn rate
Cash burn rate is the pace at which a company consumes its cash reserves over a defined period, typically expressed as a monthly figure. Gross burn rate measures total cash outflows regardless of revenue; net burn rate subtracts operating cash inflows from outflows, representing the actual depletion of reserves each period. Dividing the current cash balance by the net burn rate yields runway in months. Burn rate is the primary metric investors and boards use to gauge how aggressively a company is investing relative to its capital position and how much time remains before the next financing event is required.
Problem & Application
A SaaS startup has $900,000 in the bank, $50,000 in monthly recurring revenue, and $130,000 in total monthly operating expenses. Gross burn is $130,000; net burn is $80,000. Runway is $900,000 divided by $80,000, or 11.25 months. If the company hires two engineers at a combined $20,000 per month, net burn rises to $100,000 and runway compresses to 9 months -- a meaningful reduction that may shift the fundraising urgency from 'begin planning' to 'begin immediately.' Investors scrutinize not just the burn level but the burn trajectory: a company with flat burn and growing revenue is on a path to cash-flow breakeven; one with rising burn and flat revenue is consuming capital without improving its economics. Monthly burn-versus-MRR tracking, sometimes called the burn multiple (net burn divided by net new ARR), has become a standard benchmark for capital efficiency in venture-backed companies.
In Short
Monitoring the cash burn rate is essential for financial planning. Keeping burn rate in check ensures that a business remains financially viable and well-positioned for long-term success.