Understand your company's financial runway with our comprehensive guide and interactive calculator.
Cash Burn Rate Calculator
Enter your company's financial figures to calculate your burn rate and runway.
Your company's total cash on hand.
Total costs incurred per month (salaries, rent, utilities, etc.).
Total income generated per month.
Your Financial Snapshot
Net Burn Rate:
Gross Burn Rate:
Runway (Months):
Formula Explanation: Net Burn Rate = Monthly Revenue – Monthly Operating Expenses
Gross Burn Rate = Monthly Operating Expenses
Runway = Current Cash Balance / Net Burn Rate
Cash Flow Over Time
Visualizing your company's cash balance projected monthly.
Key Financial Assumptions
Metric
Value
Unit
Current Cash Balance
Currency
Monthly Operating Expenses
Currency
Monthly Revenue
Currency
Calculated Net Burn Rate
Currency/Month
Calculated Runway
Months
What is Cash Burn Rate?
Cash burn rate is a crucial financial metric that indicates how quickly a company, particularly startups and high-growth businesses, is spending its available cash reserves. It's essentially the negative cash flow of a company over a specific period, usually a month. Understanding your cash burn rate is vital for financial planning, fundraising, and ensuring the long-term viability of your business. A high cash burn rate, if not managed effectively or supported by a solid growth strategy, can lead to a premature depletion of funds, forcing difficult decisions or even business failure.
Who should use it?
Primarily startups, early-stage companies, and any business operating at a loss or investing heavily in growth. Venture capitalists, angel investors, and financial analysts also use this metric extensively to assess a company's financial health and investment potential. Knowing your cash burn rate is essential for any founder or finance professional.
Common misconceptions about cash burn rate include:
1. Burn Rate = Expenses: While closely related, burn rate specifically refers to the *net* outflow of cash. A company might have high expenses but also high revenue, leading to a low or even negative net burn rate (a cash inflow).
2. All Burn is Bad: Strategic cash burn can be healthy if it's fueling rapid growth, customer acquisition, or product development that promises significant future returns. The key is the efficiency and purpose of the spending.
3. It's Only for Startups: While most commonly associated with startups, any company experiencing rapid scaling, significant R&D investment, or market disruption might experience a period of elevated cash burn.
4. Burn Rate is Static: A company's burn rate can fluctuate significantly month-to-month due to seasonal sales, large one-off expenses, or shifts in investment strategy.
Cash Burn Rate Formula and Mathematical Explanation
Calculating your cash burn rate involves understanding the flow of money in and out of your business. There are two primary ways to look at burn rate: Gross Burn Rate and Net Burn Rate.
Gross Burn Rate
The Gross Burn Rate is the simpler of the two. It represents the total amount of money your company spends in a given period, typically a month, without accounting for any incoming revenue. It's a measure of your total outgoings.
Gross Burn Rate Formula:
Gross Burn Rate = Total Monthly Operating Expenses
This figure is crucial for understanding your baseline spending. It helps identify areas where costs can potentially be reduced if needed.
Net Burn Rate
The Net Burn Rate is a more insightful metric as it accounts for both your expenses and your revenue. It represents the actual rate at which your company's cash balance is decreasing.
Net Burn Rate Formula:
Net Burn Rate = Monthly Revenue - Total Monthly Operating Expenses
If the result is positive, your company is generating more cash than it's spending (a cash surplus). If it's negative, you are burning cash. The absolute value of this negative number is your net cash burn rate. For example, if your monthly revenue is $20,000 and your operating expenses are $50,000, your net burn rate is -$30,000 per month.
Calculating Your Runway
Once you have your Net Burn Rate, you can calculate your company's financial runway – the amount of time your company can continue operating before it runs out of cash, assuming current income and expense levels remain constant.
Runway Formula:
Runway = Current Cash Balance / Absolute Value of Net Burn Rate
For instance, if your company has $500,000 in cash and a net burn rate of -$30,000 per month, your runway is approximately $500,000 / $30,000 = 16.67 months. This tells you how long you have before your cash runs out.
Variable Definitions for Cash Burn Rate Calculation
Variable
Meaning
Unit
Typical Range
Current Cash Balance
Total liquid assets available in company bank accounts.
Currency (e.g., USD, EUR)
$1,000 – $1,000,000+
Monthly Operating Expenses
All recurring costs required to operate the business each month (salaries, rent, software, marketing, utilities, etc.).
Currency (e.g., USD, EUR)
$500 – $500,000+
Monthly Revenue
Total income generated from sales and services in a month.
Currency (e.g., USD, EUR)
$0 – $1,000,000+
Net Burn Rate
The net amount of cash a company is losing per month after accounting for revenue.
Currency/Month (e.g., USD/Month)
Negative values indicate burn (e.g., -$1,000 to -$100,000+)
Gross Burn Rate
The total outflow of cash per month for operations.
Currency/Month (e.g., USD/Month)
$1,000 – $100,000+
Runway
The number of months a company can sustain operations with its current cash reserves and burn rate.
Months
1 – 24+ Months
Practical Examples (Real-World Use Cases)
Example 1: Early-Stage SaaS Startup
Scenario: 'Innovate Solutions,' a new Software-as-a-Service (SaaS) startup, has just closed its seed funding round. They are investing heavily in product development and early marketing efforts.
Financial Interpretation: Innovate Solutions has a net burn rate of $50,000 per month. With their current cash balance of $500,000, they have approximately 10 months of runway. This information is critical for their next fundraising phase, indicating they need to secure additional funding or significantly increase revenue within the next 6-8 months to avoid running out of cash. They might consider optimizing marketing spend or accelerating sales efforts.
Example 2: Growing E-commerce Business
Scenario: 'Artisan Goods Co.,' an e-commerce business selling handmade crafts, has reached a stable point but is looking to expand its product line and marketing reach.
Financial Interpretation: Artisan Goods Co. is currently cash-flow positive, with a net burn rate of $5,000 per month (meaning they are adding $5,000 to their cash balance monthly). Their runway is substantial at 30 months. This positive cash flow allows them to reinvest profits into growth initiatives, like expanding inventory or increasing marketing budgets, with less immediate pressure from a short cash burn rate. They can confidently pursue growth strategies.
How to Use This Cash Burn Rate Calculator
Our Cash Burn Rate Calculator is designed for simplicity and clarity, helping you quickly assess your company's financial health.
Input Current Cash Balance: Enter the total amount of cash your company currently holds in its bank accounts. Be precise.
Input Monthly Operating Expenses: Sum up all your company's costs for a typical month. This includes salaries, rent, utilities, marketing, software subscriptions, inventory costs, and any other recurring expenses.
Input Monthly Revenue: Enter the total income your company generated from sales or services in a typical month.
Click 'Calculate Burn Rate': Once all fields are populated, click the button. The calculator will process your inputs.
Review Your Results:
Primary Highlighted Result (Runway): This is your estimated financial runway in months. It tells you how long you can operate under current conditions.
Intermediate Values: You'll see your calculated Gross Burn Rate (total monthly spending) and Net Burn Rate (the actual monthly cash outflow).
Formula Explanation: A breakdown of how each number was calculated.
Use the Data:
A short runway (e.g., less than 6-12 months) signals a need for immediate action: focus on increasing revenue, cutting costs, or starting fundraising efforts.
A positive net burn rate (cash inflow) is ideal, indicating profitability or strong growth. The runway calculation here will show how quickly your cash balance is growing.
Use the intermediate values to identify specific areas for cost reduction or revenue enhancement.
Reset or Copy: Use the 'Reset' button to clear fields and start over. Use 'Copy Results' to save the calculated metrics and assumptions for reports or further analysis.
Key Factors That Affect Cash Burn Rate Results
Several factors can influence your cash burn rate and, consequently, your financial runway. Understanding these helps in accurate forecasting and strategic planning.
Operational Efficiency:Streamlining processes, reducing waste, and negotiating better supplier terms can lower operating expenses, thereby decreasing both gross and net burn rates. This directly extends your runway.
Revenue Growth Rate:The speed at which your revenue increases is paramount. Faster revenue growth can offset or even eliminate a negative net burn rate, significantly increasing your runway or turning a burn into a surplus. Consistent revenue forecasting is key.
Seasonality:Businesses with seasonal sales patterns will see fluctuating revenue and potentially burn rates. It's important to average figures over a longer period (e.g., 6-12 months) or to prepare for cash crunches during off-seasons by building reserves during peak times.
Investment in Growth:Aggressive spending on marketing, sales, R&D, or hiring is a common reason for high cash burn. While sometimes necessary for scaling, it must be tied to a clear strategy for future revenue generation to be sustainable.
Unexpected Expenses:One-off costs, such as equipment failure, legal fees, or unexpected regulatory changes, can temporarily increase your burn rate and shorten your runway. Maintaining a cash buffer or contingency fund is wise.
Economic Conditions & Inflation:Broader economic downturns can impact sales and revenue, increasing your effective burn rate. Inflation can also drive up operating expenses (e.g., cost of goods, utilities, wages), necessitating adjustments to pricing or cost-cutting measures.
Funding Rounds & Capital Infusion:Securing new investment significantly increases your cash balance, directly extending your runway. However, it also often comes with increased expectations for growth and spending, potentially leading to a higher burn rate post-funding.
Frequently Asked Questions (FAQ)
What is the difference between Gross Burn and Net Burn?
Gross Burn Rate is the total amount of cash spent on operations monthly, irrespective of revenue. Net Burn Rate is the actual decrease in cash after accounting for revenue. For example, if you spend $50,000 (Gross Burn) but bring in $20,000 in revenue, your Net Burn is $30,000.
How often should I calculate my cash burn rate?
For active startups, calculating it monthly is highly recommended. For more stable businesses, quarterly might suffice. Regularly monitoring ensures you stay ahead of potential cash flow issues.
What is a "good" cash burn rate?
"Good" is relative. For a startup in rapid growth mode, a high burn rate might be acceptable if it fuels significant customer acquisition and future revenue. For a mature company, a high burn rate is a concern. The key is having a sufficient runway calculator to support the burn and a clear path to profitability.
My Net Burn Rate is positive. What does that mean?
A positive Net Burn Rate means your monthly revenue exceeds your monthly operating expenses. Your company is generating cash, not burning it. Your "runway" in this case represents how quickly your cash reserves are growing. This is an ideal scenario.
Should I include non-cash expenses like depreciation in my burn rate?
Cash burn rate specifically measures the outflow of actual cash. Therefore, non-cash expenses like depreciation or amortization should *not* be included in the calculation. Focus only on expenses that represent a direct reduction in your company's cash balance.
How does financing (debt/equity) affect cash burn?
Receiving financing (like a loan or equity investment) increases your current cash balance, thereby extending your runway. However, the act of repaying debt includes interest, which increases operating expenses and thus the net burn rate. Equity funding doesn't directly increase burn but often comes with expectations driving future spending.
What if my expenses fluctuate significantly month-to-month?
If expenses fluctuate, it's best to use an average monthly expense figure over a period like 3-6 months for a more stable burn rate calculation. Alternatively, calculate burn rate for conservative (high expense) and optimistic (low expense) scenarios to understand the range of possible runaways. Consider using a monthly budget planner.
How can I reduce my cash burn rate?
Reducing cash burn involves two main strategies: increasing revenue and decreasing expenses. Analyze your spending for non-essential costs, renegotiate vendor contracts, optimize marketing spend for better ROI, and focus on sales initiatives to boost income.