Glossary
Burn rate
How much more money a business spends each month than it brings in.
Burn rate: what it means in practice
If you spend $8,000 a month and make $3,000, your burn rate is $5,000. Divide your cash on hand by that number and you get your runway: the months you have before the business stops existing.
Burn rate is the single most useful number for anyone building something that is not yet profitable, because it converts a vague anxiety into a date. Founders who know their runway make different decisions than founders who do not.
Two numbers hide inside one. Gross burn is everything going out; net burn is what is left after revenue. A business spending $8,000 and earning $3,000 has a net burn of $5,000, but it still has to find $8,000 every month, and the day a large customer pays late it is the gross number that matters.
Averages flatter it too. Insurance, tax and annual software all land in the same few months, so a business burning $5,000 on average can burn $12,000 in March. Work from your worst month rather than a typical one, and count your own unpaid time as a cost - it is the expense that gets forgotten, and the first one to run out.