Burn rate

Burn rate describes how quickly a company uses cash, usually measured each month. Gross burn is total cash operating expense during the period. Net burn subtracts cash revenue collected, so it measures the actual decline in the cash balance. If a startup spends $500,000 and collects $200,000 in a month, its gross burn is $500,000 and its net burn is $300,000.

The number matters because it connects strategy to time. A deck may show burn beside revenue growth, hiring plans, and milestones to demonstrate that spending produces learning or durable progress. A single month can be distorted by annual insurance, equipment, or delayed customer payments, so investors often examine a three- or six-month average. Founders should label whether a chart shows gross or net burn and distinguish historical figures from the planned budget. Low burn is not automatically good if it prevents meaningful progress; the key question is whether each period of spending moves the company toward evidence that improves its financing options.