Glossary
burn rate
Also called cash burn, monthly burn
Burn rate is the speed at which a business is using up its cash reserves, normally measured as the amount of cash lost per month.
- How it's calculated
- Net burn = Cash out per month − Cash in per month
- Gross burn ignores income and counts total cash spent. Net burn is the figure that drives runway.
Gross burn and net burn#
Gross burn is everything you spend in a month. Net burn subtracts what you collect. A business spending £70,000 and collecting £30,000 has £70,000 of gross burn and £40,000 of net burn. Both numbers are useful and they answer different questions, so quoting one when your audience assumes the other is a common source of confusion in board meetings.
Burn is cash, not cost#
Burn measures money leaving the bank, which is not the same as the expenses on your profit and loss statement. An invoice you have raised but not been paid for is revenue with no cash behind it. An annual software licence paid up front is one month of cash and twelve months of cost. This gap between profit and cash is why profitable businesses still fail, and why a cash flow forecast is a separate exercise from a P&L.