# Burn Rate: How to Calculate Gross and Net Burn Source: https://www.cashflowforecasttemplates.co.uk/guides/burn-rate-how-to-calculate-gross-and-net-burn Updated: September 25, 2026 > Burn rate is how fast a company spends cash. Gross burn is total monthly cash spending; net burn is cash spending minus cash coming in, excluding funding. Calculate each from your bank statements or cash flow forecast, usually as a three-month average, and divide cash in the bank by net burn to get runway in months. Burn rate is the speed at which a company spends its cash. For startups and any business investing ahead of revenue, it’s one of the most important numbers to know: together with cash in the bank, it tells you how long you can keep going. This guide explains the two versions, gross and net burn, how to calculate each, and how to use them. ## Gross burn and net burn - **Gross burn** = total cash spent in a month: salaries, rent, software, marketing, everything. - **Net burn** = gross burn − cash received from customers and other operating income. Funding, such as investment rounds, loans and grants, is **excluded** from net burn. It extends runway, but it doesn’t change how fast the business uses cash. ## A worked example | | Month 1 | Month 2 | Month 3 | Average | |---|---|---|---|---| | Salaries and contractors | 73,000 | 76,500 | 75,200 | 74,900 | | Hosting and software | 7,200 | 7,400 | 7,600 | 7,400 | | Marketing | 11,000 | 13,400 | 12,000 | 12,130 | | Office, legal, other | 11,900 | 19,750 | 18,000 | 16,550 | | **Gross burn** | **103,100** | **117,050** | **112,800** | **110,983** | | Customer revenue | 14,000 | 14,980 | 16,029 | 15,003 | | **Net burn** | **89,100** | **102,070** | **96,771** | **95,980** | With $650,000 in the bank, runway is $650,000 ÷ $95,980 ≈ **6.8 months**. The same company’s gross burn is about $111,000 a month and rising slowly, while revenue grows 7 percent a month. Net burn is falling in percentage terms but not yet in dollars, because costs are growing too. Tracking both tells the founders whether growth is actually reducing the cash they need. ## Why use an average? Individual months are distorted by annual software bills, recruiting fees, equipment purchases and the timing of customer payments. A three-month average smooths these out. For planning, go further and use the forecast: if burn will rise as you hire, runway at today’s burn overstates how long you have. ## What counts, and what doesn’t **Include in gross burn:** salaries and payroll taxes, contractors, rent, software and hosting, marketing, professional fees, travel, equipment purchases, interest and loan repayments, and taxes paid. **Exclude from net burn:** equity investment, convertible notes, loans received and grants. Show them separately. **Note separately:** one-off items such as a large equipment purchase or annual contract, so readers can see the underlying monthly burn. ## Burn vs operating loss Burn is a **cash** measure. An operating loss in your accounts can be quite different because: - customers may owe you money that hasn’t been paid yet - annual subscriptions paid up front are cash now but revenue over a year - equipment is cash now but depreciation over several years - some costs are accrued but not yet paid For survival, cash is what matters. See [cash flow vs profit](/guides/cash-flow-vs-profit-why-profitable-businesses-run-out-of-cash). ## From burn to runway **Runway (months) = cash in the bank ÷ average net burn** Runway tells you when the money runs out; subtract the time a fundraise takes (often around six months) to get the latest date to start raising. The full method, including how to extend runway, is in [how to calculate cash runway](/guides/how-to-calculate-cash-runway-and-extend-it). ## Burn in a forecast, not just in the past Past burn tells you what happened. Forecast burn tells you what will happen given your plans: hires with start dates, contracts renewing, marketing budgets and expected revenue growth. Build a monthly forecast with each of these, and read net burn off the forecast for every month ahead. You’ll often find burn rising for several months as the team grows, then falling as revenue catches up. The month where forecast net burn turns to zero is the month the company becomes self-funding, sometimes called breakeven on a cash basis. ## Burn for businesses that aren’t startups Burn rate isn’t only a startup idea. A seasonal business in its quiet months, a company going through a restructuring, or a new location that hasn’t reached break-even all burn cash for a period. The same calculation applies: the monthly shortfall is the burn, and dividing cash in the bank by it tells you how long you can sustain it. ## How investors read burn - **Trend:** is net burn rising faster than revenue? - **Efficiency:** how much new revenue does each dollar of burn produce? Some investors compare net new annual recurring revenue with net burn. - **Runway after the round:** 18 to 24 months is a common expectation. - **Plan vs actual:** did you burn what you said you would? Presenting burn monthly, with actuals against plan, builds credibility. ## Burn multiple Some investors look at the **burn multiple**: net burn divided by net new annual recurring revenue in the same period. A company that burns $300,000 in a quarter while adding $200,000 of annual recurring revenue has a burn multiple of 1.5. Lower is better, because it means each dollar of burn buys more growth. It’s mainly used for subscription businesses, and the benchmarks vary by stage, but tracking it quarterly is a quick way to see whether spending is becoming more or less efficient. ## Reducing burn without stalling 1. Delay hires that aren’t tied to revenue or a funded milestone. 2. Cut marketing channels that don’t pay back within a reasonable period. 3. Renegotiate annual software and hosting commitments. 4. Move customers to annual prepayment to bring cash forward. 5. Review contractor use and office costs. Each should be tested in the forecast first, to see how many months of runway it adds. ## Reporting burn to your board A simple monthly burn report fits on half a page: | | This month | 3-month average | Plan | |---|---|---|---| | Gross burn | 112,800 | 110,983 | 108,000 | | Revenue | 16,029 | 15,003 | 16,500 | | Net burn | 96,771 | 95,980 | 91,500 | | Cash in the bank | 362,059 | | | | Runway at average burn | 3.8 months | | | Add one line explaining the largest difference from plan, and one line on what will change next month. Consistency matters more than format: report the same numbers, calculated the same way, every month. ## Common mistakes - **Counting funding as income**, which makes net burn look far lower. - **Using a single month.** - **Ignoring committed increases** such as signed offers and new contracts. - **Confusing gross and net burn** when talking to investors. - **Not updating it monthly.** ## Tools The premium [Startup](/templates/startup-cash-flow-forecast-template) and [SaaS](/templates/saas-cash-flow-forecast-template) templates calculate operating burn excluding funding every month, with a funding schedule and a Runway tab that shows months left and the latest date to start raising. ### What is the difference between gross burn and net burn? Gross burn is total monthly cash spending. Net burn is gross burn minus cash received from customers and other operating income, excluding funding. ### How do I calculate burn rate? Add up cash out for a month to get gross burn. Subtract cash in from customers to get net burn. Use an average of the last three months to smooth one-off items. ### What is a good burn rate? There is no single number. What matters is runway, typically 18 to 24 months after a round, and whether burn is buying growth efficiently. ### Should one-off costs be included in burn rate? Include them in actual burn, but note them separately so the underlying monthly burn is clear. ### Is burn rate the same as operating loss? No. Burn is a cash measure; operating loss is an accounting measure. Payment timing, equipment purchases and non-cash costs make them differ.