Burn rate is the pace at which a company uses cash, usually measured per month. Gross burn counts cash paid out within a stated scope.
Net burn subtracts cash collected on the same basis. New funding can lift your bank balance while operations still use cash. Work out burn first, then explain the other cash flows.
Calculate gross and net burn rate on the same basis
Start by naming the period, currency, accounts and cash flows you count. This guide uses operating cash payments and customer cash collections.
Positive net burn means operations consumed cash. Asset purchases and funding sit outside that measure. Both stay in the cash plan.
| Measure | Formula for this guide | What it answers |
|---|---|---|
| Gross operating burn | Operating cash payments ÷ months | How much cash did operations pay out per month? |
| Net operating burn | (Operating cash payments − customer collections) ÷ months | How much cash did operations consume after collections? |
| Non-financing cash use | (Operating payments + capital purchases − collections) ÷ months | How much cash did this example use before financing? |
Burn rate is a management measure, not one universal financial-statement line. Stripe’s guide explains the common gross/net distinction.
Its shorthand subtracts revenue. For a cash worksheet, use money actually collected; do not assume revenue and receipts fall in the same month.
A sale may count as revenue before the client pays the bill. A client may pay for a full year before you provide all the service.
Your SaaS pricing and billing model affects that timing. A signed contract or a promised payment is not a deposit in the bank.
Cash paid out also differs from costs in the accounts. Depreciation spreads an asset’s cost over time.
It is not a new cash payment each month. The SEC’s financial-statement guide explains why profit and cash flow differ. Do not substitute net loss or EBITDA for the cash numbers in this worksheet.
Count each cash payment that fits your scope. Real records may have tax, interest and other flows that this small case leaves out.
Use the firm’s accounting rules for its formal statements. The label you choose for burn does not set those rules.
Build the first sheet from cash dates
Take one closed month and list each included account’s opening and closing cash. Record client receipts and payments on their cash dates. Label payment types and link entries to their bank records or bills.
A small test helps. Suppose a client owes 10 at month-end but pays it next month.
Put the cash in next month’s column. Do not count it in both months.
If you move 10 from one included bank account to another, the firm’s total cash has not grown. Match both sides of the transfer and remove it from external flows.
Have a colleague trace one row per group to its source. Check the labels for client receipts, loans and assets before extending the forecast. This checks the worksheet; it is not an audit opinion.
Reconcile burn with the cash balance
The following company is fictional. All table amounts are USD thousands: 300 means $300,000.
These are cash amounts, with no other flows. The three rows cover three months in a row. Each has the same scope.
| Month | Opening cash | Customer collections | Operating payments | Capital purchases | Financing received | Net operating burn | Closing cash |
|---|---|---|---|---|---|---|---|
| 1 | 300 | 60 | 100 | 20 | 200 | 40 | 440 |
| 2 | 440 | 80 | 110 | 0 | 0 | 30 | 410 |
| 3 | 410 | 100 | 120 | 10 | 0 | 20 | 380 |
Check each row with the same cash identity:
Closing cash = opening cash + customer collections
− operating payments − capital purchases
+ financing receivedMonth 1 closes at 300 + 60 − 100 − 20 + 200 = 440. Month 2 starts with that 440.
The end of one month must match the start of the next. Explain any gap before you work out a mean.
Across the three months, collections total 240 and operating payments total 330. Gross operating burn averages $110,000 per month: 330 ÷ 3. Net operating burn averages $30,000 per month: (330 − 240) ÷ 3.
Including the 30 of capital purchases, non-financing cash use averages $40,000 per month. That is a different measure, with its own label. A separate line for assets does not erase the cash spent on them.
The bank balance rose from 300 to 380. Here is why:
Financing received +200
Net operating cash consumption −90
Capital purchases −30
Change in cash +80Simply dividing opening cash minus closing cash by three produces −26⅔ per month. That is the mean change in bank cash with its sign reversed.
It is not net operating burn. The new funding is mixed into it.
If the 200 came from an equity round, the cash receipt belongs in financing. The startup cap-table guide covers the separate ownership consequences.
Borrowed cash also needs its own line and future repayment terms. Neither receipt is customer cash or proof that operations stopped consuming money.
The IAS 7 overview separates operating, investing and financing activities. That distinction helps organize this bridge. It does not make the example a complete IFRS statement or mean every US startup reports under IFRS.
Keep both the average and the latest month visible. Here, operating burn falls from 40 to 20, while gross payments rise from 100 to 120.
Faster collections account for the change. The average alone would hide that pattern; the latest month alone might give too much weight to one collection date.
The cashbook and receipt illustrate tracing an entry back to its source.
Test runway against a forward cash floor
At the end of the history, cash is 380 and average net operating burn is 30. If that rate stayed constant and no other flows occurred, the cash-to-zero quotient would be 12⅔ months: 380 ÷ 30.
Now choose an illustrative planning floor of 50. The same flat-rate calculation gives 11 months: (380 − 50) ÷ 30.
We chose this floor for the example. It is not a legal limit or advice on how much cash your firm should keep.
Both sums leave out new assets, loan principal and changes in burn. For those, build a dated forecast.
This new case starts at 380. It has no new funding. All its cash uses are shown below.
| Forecast month | Net operating burn | Capital purchases | Principal paid | Closing cash |
|---|---|---|---|---|
| 1 | 30 | 0 | 0 | 350 |
| 2 | 35 | 60 | 0 | 255 |
| 3 | 40 | 0 | 0 | 215 |
| 4 | 45 | 0 | 20 | 150 |
| 5 | 50 | 0 | 0 | 100 |
| 6 | 55 | 0 | 0 | 45 |
Each closing balance subtracts that month’s three uses from the prior balance. The first month-end below the 50 floor is month 6.
Cash remains positive at 45. Crossing the floor is not the same as running out of cash. This table does not give an exact date of failure.
That differs from 11 months for a reason. The forecast uses changing burn, a capital purchase and a principal payment.
The ratio held burn constant and omitted those other flows. Each result rests on its own inputs.
Use real due dates for bills you have agreed to pay. A software build-cost estimate can help identify one-off bills and recurring costs, but a project total alone cannot tell you when cash leaves. Separate delivery milestones, invoice dates and payment dates in the forecast.
Keep an unreceived funding round out of this base case. You can model a separate funding scenario with its assumed receipt date, then show how the result changes if it slips or never arrives.
Paul Graham’s October 2015 essay Default Alive or Default Dead? frames survival as a conditional question under expense and revenue-growth assumptions. That is broader than dividing today’s cash by a historical burn average.
A new equipment purchase belongs on the cash plan even when shown separately from operating burn.
Check the formula’s boundaries
At zero net burn, you cannot divide cash by burn. At negative burn, those operations brought in more cash than they spent.
The formula for cash running out no longer applies. Neither case proves the cash will last for good. A later tax bill, new asset or fall in cash from clients can change that.
Check which cash you can use. Remove transfers between the firm’s own included accounts.
Do not count the same money twice. Check the terms for funds you cannot spend. A legal limit on funds is different from a floor you choose.
Working capital is not the same as spendable cash. In a separate fictional example, cash of 50, receivables of 150 and inventory of 100, less current liabilities of 200, leave working capital of 100.
Bank cash is still only 50. You still need to know when a client will pay or stock will sell.
Month-end balances can hide an earlier shortfall. Start with 80, pay 100 early in the month and collect 60 later.
The modeled path is 80 → −20 → 40. The cash left at month-end does not prove you can pay the early bill. Without more cash, that bill cannot be paid as planned.
Use weekly or daily dates when the sequence matters. Do not smooth a payroll deadline into an average merely because the monthly total looks comfortable.
Do not just assume a supplier will let you pay late. Check the new terms and the date they start.
A calendar and envelope draw attention to the date a payment is due.
Turn the review into a dated action
Give the burn rate worksheet an owner and an as-of date. Retain input sources so a colleague can check its sums and labels.
- Reconcile the history. Tie opening and closing totals to the included accounts, then explain every difference through receipts and payments.
- Label the scope. State the cash convention, currency, period and exclusions. Keep capital and financing lines visible alongside operating burn.
- Update the forecast. Replace assumptions with actual receipts, payment dates and commitments as they become known. Preserve the previous version for comparison.
- Explain the variance. Separate a late collection from a lost customer, and a shifted invoice from a permanent spending change.
- Assign an action. Name the decision, owner, due date and evidence that will trigger another review.
If a client pays a month late, move that receipt and recalculate later balances. Do not just change a sales-growth rate. Check which payments remain covered and whether cash crosses the chosen floor.
Reconcile any gap between past cash flows and bank balances. Check for missing accounts or duplicate payments; never invent an entry to force a match.
Our bootstrapping build plan connects spending gates to a founder’s risk cap. Use that kind of explicit limit when setting a review trigger. A trigger might call for a new forecast or a scope decision; it need not mean automatically cutting an essential activity.
What is an acceptable burn rate?
No one burn amount or runway target fits all startups. Look at cash you can use, bills you owe, the work it funds and the chance of late receipts.
A low rate can still be unaffordable. A higher rate needs a sound cash plan, not just a bold goal.
Ask what the spending buys and how you will check progress. Compare that progress with cash used and bills still due. If a proposed cut saves cash now but delays the next customer payment, model both effects before calling the cut an improvement.
Unit economics answers a related question about customer contribution and acquisition cost. A profit on each sale does not prove the firm has enough cash for wages or debt payments.
Keep those measures beside the cash plan. Each answers its own question.
Tim Brady’s Y Combinator video explains burn, runway and growth as distinct metrics. Use it as background to the worked example, not as verification of this fictional company’s figures or a current funding benchmark.
Before sharing the worksheet, check four things: the cash bridge balances, all exclusions are visible, forecast dates match the assumptions, and the next decision has an owner. Those checks make the number useful without pretending it predicts survival.