How to calculate burn rate: gross burn, net burn and an example
Gross burn is all the cash your company spends in a month. Net burn is gross burn minus the cash customers pay you, and it is the number investors mean by burn rate. A startup that spends $140,000 and collects $40,000 has a gross burn of $140,000 and a net burn of $100,000. Average the last three months, and leave out money you raised or borrowed.
Updated · 5 min read · By the Accountable team
The short version
- Gross burn is all the cash that leaves in a month, and net burn is that cash minus the cash customers pay you.
- Investors mean net burn when they say burn rate, because runway is your cash balance divided by net burn.
- Average the last three complete months so one annual bill or one large invoice does not swing the number.
- Money you raise or borrow is not revenue, so it stays out of net burn.
- Burn is a cash measure, so use cash in and cash out, not the accrual profit and loss.
Gross burn is monthly cash out, and net burn subtracts the cash that comes in
Burn rate is how fast a company spends its cash. There are two versions, and people mix them up. Gross burn answers the worst case: how fast cash would leave if no customer paid you. Net burn answers the real case: how fast the bank balance actually falls.
| Measure | Formula | What it answers |
|---|---|---|
| Gross burn | All cash paid out in the month | How fast cash leaves if customers stopped paying |
| Net burn | Cash paid out minus cash received from customers | How fast the bank balance actually falls |
| Runway | Cash balance divided by net burn | How many months until the balance reaches zero |
Cash out means money that leaves the bank: payroll, contractors, software, rent, ad spend, insurance, taxes, equipment purchases and loan interest. Cash in means money that customers pay you. Mercury and Stripe publish the same two definitions.
Three months of real numbers give a net burn of $96,000
Take a software startup with six employees. The table shows its cash out and cash in for January, February and March. February is higher because the company paid a $24,000 annual insurance premium.
| Month | Gross burn (cash out) | Cash from customers | Net burn |
|---|---|---|---|
| January | $125,000 | $35,000 | $90,000 |
| February | $152,000 | $40,000 | $112,000 |
| March | $132,000 | $46,000 | $86,000 |
| 3-month average | $136,333 | $40,333 | $96,000 |
Cash out: payroll $90,000 + software and cloud $12,000 + marketing $18,000 + other $8,000 + annual insurance $24,000 = $152,000 (gross burn).
Cash in: $40,000 from customers.
Net burn: $152,000 - $40,000 = $112,000.
Three-month net burn: ($90,000 + $112,000 + $86,000) ÷ 3 = $96,000.
Keep the insurance premium in. It is real cash that left the bank. Without it, February's net burn would be $88,000 and the average would be $88,000, which would flatter the company by $8,000 a month. With $960,000 in the bank on March 31, this company has 10 months of runway (how to calculate runway). To try your own numbers, use the runway and burn rate calculator.
Investors mean net burn, and they read it next to growth
When an investor asks what your burn is, they mean net burn. They use it to compute runway, and Brex's guide notes that investors focus on net burn because it correlates directly with how long you can operate.
Many investors also divide net burn by net new revenue to see what each dollar of growth costs. Mercury's example is a company that burns $200,000 a quarter while adding $100,000 of new annual recurring revenue: a burn multiple of 2. Lower is better.
Net burn for the quarter: $90,000 + $112,000 + $86,000 = $288,000.
Monthly recurring revenue grew from $31,600 to $44,500, which is $12,900 more a month, or $154,800 of net new annual recurring revenue.
Burn multiple: $288,000 ÷ $154,800 = 1.9.
Five mistakes make burn look better or worse than it is
- Counting a loan or a funding round as revenue. If this company received a $250,000 bridge note in February, February would show a $138,000 cash gain instead of a $112,000 net burn, and the real burn would disappear. Leave money raised or borrowed out of net burn. Loan principal you repay is financing, not operating spend, but the interest you pay is a real cost, so keep it in.
- Deleting one-off bills. The $24,000 insurance premium is cash that left. Average three months instead of removing it.
- Using the accrual profit and loss. A customer who prepays $24,000 for a year shows as $2,000 of revenue a month on the accrual profit and loss, but as $24,000 of cash in the first month. Burn follows cash.
- Leaving out purchases that are not expenses. A $6,000 laptop is cash out the day you buy it, even though the accrual books spread it over several years as depreciation. Depreciation itself is not cash, so never count it.
- Averaging a partial month. Use complete months only. Half a month of spend makes burn look half as large.
Cash basis is right for burn, and accrual is right for profit
Accrual accounting counts revenue when you earn it and costs when you incur them. Cash accounting counts money when it moves. Both are correct for different questions, and investors usually want both.
| Question | Basis | Why |
|---|---|---|
| How long will our cash last? | Cash | Only cash pays payroll and rent. |
| Are we profitable on the work we delivered this month? | Accrual | Revenue and cost land in the month they belong to. |
| What do we show investors? | Both | Burn and runway on cash, the profit and loss on accrual. |
The full comparison is in accrual vs cash accounting for startups.
Get burn from your books in five steps
Step 1: Close the month so every bank transaction is categorized and matched to the bank statement.
Step 2: Add up the cash that left your bank accounts in the month, leaving out transfers between your own accounts.
Step 3: Add up the cash customers paid you, leaving out loans and investment.
Step 4: Subtract cash in from cash out to get the month's net burn. Repeat for the last three complete months and take the average.
Step 5: Divide your cash balance by that average to get runway, and put both numbers in your investor update.
Questions founders ask
What is a good burn rate for a startup?
There is no single good number, because it depends on stage and growth. What matters is that runway covers the time to reach profit or to raise again, and many investors advise starting a raise with 12 to 18 months of runway left.
Should I use gross burn or net burn?
Use net burn for runway, because customers' payments really do offset your costs. Show gross burn too, since it tells investors what happens if revenue stops.
Do loan repayments count as burn?
Most founders leave loan principal out of net burn because it is financing, not operating spend, and show debt payments separately. Interest is an operating cost, so it stays in.
Can burn be negative?
If more cash comes in than goes out, the company is cash-flow positive. It has no burn, and its runway is not limited by cash.
Does burn rate include payroll taxes and benefits?
Yes. Burn counts every dollar that leaves the bank for running the company, including payroll taxes, benefits, contractors and software.
Burn and runway from books that are already done
Accountable shows Total cash, Monthly burn and Runway on Home for any month, always on a cash basis and without money you raised or borrowed. It averages the last 3 complete months by default, and you can switch to the last month, 6 months or a fixed amount.
Start freeSources, checked September 30, 2026:
Read next
- How to calculate startup runway: formula, example and default alive
- Investor update template: a monthly email with real numbers
- Accrual vs cash accounting for startups: a worked example and when to switch
- Month-end close checklist for startups: 12 steps, a 5-day calendar and the adjustments that matter