Burn Rate

Burn rate sets the clock on every other decision: how long the team can keep working, when funding has to close, how risky a new hire really is. A business that never looks at it tends to find out its position only when the account is nearly empty. A business that is profitable in cash terms has no burn at all, so the figure only applies while spending outruns income.

• Calculate net burn monthly from actual bank movements, not from the profit and loss statement. Timing and non-cash items make the two differ.
• Watch the average of three months. One bad month is often noise, such as an annual subscription renewing.
• Separate burn that buys growth, like a salesperson who is producing meetings, from burn that buys nothing, like an unused tool.
• Cut idle spend early, before the trend forces a rushed decision.
• Pair it with runway so the team sees both the speed and the time left.

Burn rate measures how fast a business uses up its cash. Gross burn is every payment leaving the account in a month: salaries, tools, rent, suppliers. Net burn subtracts the cash that came in over the same month, so it shows how fast the balance actually falls. Net burn is the figure that matters most, because it feeds directly into runway, the number of months the cash will last.

Say a business pays out 30,000 euros in a month and receives 18,000 euros from customers. Net burn is 12,000 euros. With 96,000 euros in the bank, runway is eight months.

• Using the accounting loss instead of cash movement.
• Ignoring large irregular payments such as tax, insurance or annual licences.
• Cutting growth spend and waste with the same knife.