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Cash is the fuel that keeps a business running, but how quickly you’re using that fuel is just as important as how much you have. That is where burn rate comes in. It’s a simple but essential metric that helps you understand your company’s financial health over time.
In this guide, we’ll start by answering the common question, “What is a burn rate in business?”. Then, we’ll discuss how to calculate it and why it plays such a big role in planning, fundraising, and long-term decision-making.
What Is a Burn Rate in Business?
If you’ve been wondering, “What is a burn rate in business?”, the answer isn’t too complicated. Burn rate is the amount of money your business spends over a given period, usually each month. It is most commonly used by startups and early-stage companies to measure how quickly they are using up their available cash.
There are two types of burn rate. Gross burn is your total expenses, while net burn is your expenses minus any revenue coming in. Net burn is the number most business owners care about, because it tells you how fast your cash reserves are actually shrinking.
Why Knowing Your Business Burn Rate Matters
Your burn rate helps you understand how long your business can operate before you need more cash. It affects nearly every strategic decision, from hiring and marketing to product development and fundraising. If you’re not tracking it, you could end up overspending without realizing it—or worse, run out of money entirely.
Knowing your burn rate also helps you communicate with investors, lenders, or partners. It shows that you are managing your cash responsibly and thinking ahead. Even profitable businesses can benefit from watching burn rate closely, especially during times of growth or transition.
How to Calculate Your Burn Rate Step by Step
The formula for burn rate is simple. You subtract your ending cash balance from your starting cash balance, then divide that number by the number of months in the period.
Burn Rate = (Starting Cash – Ending Cash) ÷ Number of Months
Let’s say you started the quarter with $500,000 in cash and ended it with $350,000. That means you spent $150,000 over three months, which gives you a burn rate of $50,000 per month.
You can also calculate net burn by subtracting your monthly revenue from your monthly expenses. That number tells you how much you are actually losing each month, even after income.
What Is a Good Burn Rate for a Growing Business?
There is no one perfect number, but your burn rate should match your stage, your goals, and how long you need your current cash to last. For early-stage startups that are not generating revenue yet, a higher burn rate might be expected. In those cases, the key question is how many months of runway you have before you need to raise more capital.
For more established businesses, a healthy burn rate usually means keeping net losses small or maintaining a positive cash flow. If you are growing fast but burning through cash even faster, it may be time to reassess your spending and pace. The best burn rate is one that lets you hit key milestones without putting your business at risk. You can check out our ebook to learn 21 tips to improve cash flow.
How to Reduce Your Burn Rate Without Slowing Growth
Cutting burn rate doesn’t always mean slashing headcount or freezing growth. In many cases, it is about being more intentional with spending and improving operational efficiency. Start by reviewing recurring expenses. Are there tools or services you’re paying for but not fully using? Can you renegotiate vendor contracts or find better rates?
You can also look at your processes. Automating manual tasks or tightening up your billing and collections cycle can improve cash flow without hurting productivity. The goal is not to cut corners. It is to make sure every dollar you spend is moving the business forward.
FAQs About What Is Burn Rate in Business?
What is the difference between gross burn and net burn?
Gross burn is your total monthly expenses. Net burn subtracts any revenue from those expenses to show how much cash you are actually losing each month.
How often should I calculate my burn rate?
Monthly is a good baseline, but during high-growth periods or cash-sensitive times, tracking it weekly can help you catch issues sooner.
Can a profitable business still have a high burn rate?
Yes, if a business is spending aggressively to scale, it may have a high burn rate even with strong revenue. The key is knowing how long your cash will last.
What is a dangerous burn rate?
A dangerous burn rate is one that leaves you with less than six months of runway and no clear plan to reduce expenses, raise capital, or increase revenue.
Does burn rate include non-cash expenses like depreciation?
No, burn rate is focused on cash movement, so it excludes non-cash expenses like depreciation or amortization.
How can I extend my runway without raising funding?
Reducing expenses, improving margins, tightening collections, and delaying nonessential hires are all ways to extend your cash runway without outside capital.
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Matt Garrett is the Founder and Chief Executive Officer of TGG. He is a regular speaker across the country on behalf of Vistage educating business owners on the need for sound financial practices, and is Vice President of the Board of Directors of FINACA. Under Matt’s leadership, TGG has received the following recognition: INC. 5000 top companies in the U.S. five years in a row; one of “San Diego’s Fastest Growing Companies” the past four years; and is among San Diego’s “Best Places to Work.”
