Definition
Net burn measures the net cash a company consumes during a period. It is commonly used by startups that are not yet generating enough cash from operations to cover their cash outflows.
A simple calculation is:
Net Burn = Cash Outflows − Cash Inflows
For example, if a company spends $300,000 during a month and receives $100,000 in cash from customers and other operating sources, its net burn is:
$300,000 − $100,000 = $200,000
Net burn is commonly expressed as a monthly figure, although it can be calculated over any relevant period.
Gross burn vs. net burn
The distinction is whether cash inflows are deducted.
Gross Burn | Net Burn | |
|---|---|---|
Cash outflows | $300,000 | $300,000 |
Cash inflows | Not deducted | $100,000 |
Monthly burn | $300,000 | $200,000 |
Gross burn shows how much cash the company spends.
Net burn shows how much cash the company is actually consuming after considering its cash inflows.
How is net burn calculated?
A basic monthly calculation is:
Net Burn = Total Cash Outflows − Total Cash Inflows
For example:
Cash outflows: $500,000
Cash inflows: $175,000
Net burn = $500,000 − $175,000 = $325,000
If the company maintains a similar cash profile, it is consuming approximately $325,000 of cash per month.
For companies with volatile cash flows, an average net burn over several months may provide a more useful planning measure.
What counts as cash inflows?
Depending on the company's situation and methodology, relevant inflows can include:
Customer payments
Recurring subscription collections
Other operating receipts
Certain other cash receipts relevant to the company's cash planning
Founders should distinguish operating cash inflows from financing activities.
For example, money received from a new equity financing increases the company's cash balance but should not normally be treated as operating revenue when calculating operating net burn.
What counts as cash outflows?
Net burn can include cash payments associated with:
Employee compensation
Contractors
Marketing
Product development
Software and infrastructure
Rent
Professional services
Other operating expenses
The precise definition should be applied consistently.
Net burn and runway
Net burn is one of the key inputs used to estimate runway.
A simplified calculation is:
Runway = Available Cash ÷ Monthly Net Burn
For example:
Available cash: $2.4 million
Monthly net burn: $200,000
$2.4 million ÷ $200,000 = 12 months
The company therefore has approximately 12 months of runway under the assumption that its net burn remains constant.
This is an estimate, not a guarantee. Changes in revenue, spending, hiring, collections, or other cash movements can materially change the result.
Why does net burn matter?
Net burn helps founders understand how quickly their available cash is being depleted.
It can inform decisions about:
Hiring
Spending
Fundraising
Expansion
Cost control
Product investment
Cash management
Investors may also use net burn to understand how much capital a startup is consuming relative to the progress it is making.
Net burn and revenue
Net burn should not be confused with the difference between revenue and expenses.
Revenue is an accounting measure.
Net burn is a cash-flow measure.
The two can differ because of:
Accounts receivable
Accounts payable
Prepayments
Deferred revenue
Non-cash expenses
Capital expenditure
Other working-capital movements
For example, a company may record $100,000 of revenue during a month but collect only $60,000 in cash from customers during that period.
For cash planning, the $60,000 collection is more directly relevant to net burn.
→ Revenue
Net burn and growth
A company can have a high net burn while growing rapidly.
That does not automatically indicate poor financial performance.
For example, a startup may intentionally spend heavily on:
Hiring
Sales
Marketing
Research and development
International expansion
The relevant question is whether the cash being consumed is producing sufficient progress toward the company's objectives.
Investors may therefore consider net burn alongside:
Revenue growth
ARR growth
Gross margin
Customer acquisition
Retention
Unit economics
Runway
Net burn and fundraising
Net burn is particularly important when determining when additional capital may be required.
Suppose a startup has:
$1.8 million cash
$200,000 monthly net burn
9 months of theoretical runway
If the company expects its fundraising process to take several months, waiting until the final months of runway could create unnecessary financing pressure.
Founders therefore need to consider both current net burn and expected future burn when planning a financing round.
Net burn can change
Net burn is not necessarily constant.
It can increase because of:
New hires
Higher marketing spend
Expansion
Product investment
Lower revenue
Slower customer collections
It can decrease because of:
Revenue growth
Cost reductions
Improved collection
Higher gross margins
Reduced discretionary spending
A company should therefore monitor its actual cash movements rather than relying indefinitely on a historical burn figure.
Example
A startup begins a month with $1 million in cash.
During the month:
It pays $350,000 in operating costs.
It collects $125,000 from customers.
Its net burn is:
$350,000 − $125,000 = $225,000
If the same net burn continued and no other material cash movements occurred, its simplified runway would be:
$1 million ÷ $225,000 ≈ 4.4 months
If revenue increased or expenses decreased, its runway could extend.
Common misconception
Net burn is the same as a company's monthly loss.
No.
Net burn measures cash consumption, while accounting profit or loss measures financial performance according to the applicable accounting framework.
A company can report an accounting loss without consuming the same amount of cash, and its cash balance can decrease for reasons that are not reflected directly in its operating loss.
For startup financial planning, it is therefore important to distinguish profitability from cash consumption.
