Burn rate is how much cash your business spends each month relative to how much it earns. You calculate it by subtracting your monthly revenue from your monthly expenses. It's the speed at which you're running out of cash.
Burn rate is the financial clock every cash-dependent business watches obsessively. For startups and growth-stage companies that haven't reached profitability, burn rate is the metric that drives every hiring, marketing, and product decision. When you know you're burning $80,000 per month, every headcount addition becomes a runway equation first.
For finance teams, burn rate is a leading indicator of cash health. It's not just historical reporting - it's the predictor of whether you can make payroll three months from now. A rising burn rate, even if you have 12 months of cash today, is a red flag that forces a conversation: cut costs, accelerate revenue, or raise money.
For accountants and business advisors, burn rate is the number you use to stress-test a business plan. A founder might project $100k monthly revenue in six months, but if their current burn is $120k per month and revenue is flat, they're not achieving profitability organically - they need external funding or fundamental changes to the business model. Burn rate separates optimism from reality.
Burn rate is straightforward in formula but requires discipline in calculation.
The formula:
Real example:
A SaaS team with 5 full-time employees (total payroll $180k per month) plus $25k in tools, infrastructure, and rent runs at $205k monthly spend. They're earning $120k in recurring revenue. Net burn: $205k minus $120k equals $85k per month. Over three months: $85k, $78k (after a hire), $92k (seasonal marketing push). Average: $85k. That's their burn rate.
Calculating forward-projected burn:
Static burn assumes your costs stay constant. More sophisticated teams calculate a forward burn rate that accounts for revenue growth. If you're growing revenue 20% month-on-month and burn is flat at $50k, your effective burn is shrinking because the ratio of revenue-to-burn is improving. This is the opposite of alarming.
Common mistakes:
Best practices:
Aarvo calculates your burn rate in real time on the dashboard. Every transaction that lands via your connected bank feeds updates your monthly expenses automatically. Revenue from invoices flows in automatically too. The dashboard shows your rolling three - month average burn rate, so you see trends without manual spreadsheet updates.
You can also set burn rate thresholds and receive alerts when you cross them, so you're never surprised mid - month. The system separates one-off costs from baseline burn, so your burn rate reflects sustainable spending, not a single noisy transaction. Sign up free at aarvo.com/signup and your burn rate is live on the dashboard within minutes of connecting your bank accounts.
Burn rate is how much cash you lose each month. If you spend $50,000 and earn $20,000, your burn rate is $30,000 per month. It's the speed at which your cash depletes. The higher your burn rate, the shorter your runway before you run out of money. Most early-stage businesses track this obsessively.
Subtract your monthly revenue from your monthly expenses. Use your last 3 months of data and average them to smooth out one-off costs. For example: Month 1 expenses $80k minus revenue $30k equals $50k burn. Month 2: $75k minus $35k equals $40k. Month 3: $85k minus $25k equals $60k. Average: $50k per month. This is your net burn rate.
Gross burn rate is your total monthly expenses, regardless of revenue. Net burn rate accounts for revenue and shows how much cash you actually lose. Net is the number that matters because revenue offsets spending. A business with $100k expenses and $60k revenue has $100k gross burn but $40k net burn.
Burn rate changes fast. A big contract ends, you hire someone, or you cut marketing spend - and your burn rate shifts immediately. Weekly tracking means you spot trends early. Monthly tracking often means you're reacting after the damage is done. Most founders look at burn weekly during critical periods and monthly at minimum.
Burn rate is speed; runway is distance. Burn rate tells you how much cash you lose per month. Runway tells you how many months your cash will last at that burn rate. If you have $500k and burn $50k per month, your burn rate is $50k but your runway is 10 months. They're linked but different metrics.
Runway is the number of months your business can keep going before it runs out of cash. You work it out by dividing your cash balance by your average monthly net burn. It's the number founders use to decide when to hire, when to raise, and when to cut.
Cash flow is the net amount of cash moving in and out of your business over a given period. Positive cash flow means more money is coming in than going out; negative cash flow means you're spending faster than you earn.
Expenses are the costs your business incurs to operate - salaries, rent, supplies, utilities, equipment, travel, professional fees. They're deducted from revenue to calculate profit. Not all expenses are tax-deductible, and expense timing affects cash flow.