Cash Burn Rate Calculator
Analysis Results
How to Calculate Cash Burn Rate for Your Company
Understanding your cash burn rate is the most critical financial metric for startups and growing businesses. It measures the pace at which your company is "burning" through its cash reserves before generating positive cash flow from operations.
Gross Burn vs. Net Burn
There are two primary ways to look at burn rate:
- Gross Burn Rate: This is the total amount of operating expenses your company incurs each month. It represents your total monthly outgoings without considering income.
- Net Burn Rate: This is the actual amount of money the company is losing each month. It is calculated as (Total Expenses – Total Revenue). If your net burn is $20,000, your cash balance decreases by exactly $20,000 every month.
The Cash Burn Formula
To calculate the monthly net burn rate, use the following formula:
Calculating Cash Runway
Once you know your net burn rate, you can determine your "runway"—the number of months your business can survive before running out of money.
Example Calculation
Imagine a tech startup starts the first quarter (3 months) with $200,000 in the bank. After three months of developing their software and paying staff, they have $140,000 remaining. Their monthly expenses are $30,000.
- Total Cash Lost: $200,000 – $140,000 = $60,000
- Monthly Net Burn: $60,000 / 3 months = $20,000 per month
- Gross Burn: $30,000 (The total expenses mentioned)
- Runway: $140,000 / $20,000 = 7 Months
In this scenario, the company has exactly 7 months to either become profitable, reduce costs, or raise another round of funding before the bank account hits zero.