Net Burn

Net burn is the amount of cash a company actually loses in a month once its revenue is taken into account — total monthly cash outflow minus total monthly cash inflow. If a startup spends two hundred thousand dollars a month running the business and brings in sixty thousand in revenue, its net burn is one hundred forty thousand. That is the sum genuinely leaving the bank account each month, and it is the number that matters most to a founder watching the balance fall. Net burn is a cash figure, not an accounting-profit figure, so it tracks real money in and out rather than accruals, non-cash charges, or timing adjustments. When net burn turns negative, the company is net cash-flow positive — more comes in than goes out — and it is building cash rather than depleting it.

Net burn drives the single most consequential number for an early company — runway, the months of life left before the cash runs out, calculated as current cash divided by monthly net burn. A firm with one and a half million in the bank and a net burn of one hundred fifty thousand a month has ten months of runway. Because runway pivots on net burn, reducing net burn — by lifting revenue or cutting spend — extends the runway, and rising net burn shortens it. Investors and boards watch net burn closely, because it tells them how fast the company is consuming the capital it raised and how long that capital will last before the next round or profitability. It is the pulse reading on cash survival.

The essential contrast is between net burn and gross burn. Gross burn is total cash going out — all operating spend, from payroll and rent to marketing and cloud bills — with no credit for revenue at all. Net burn subtracts the revenue coming in, so it reflects the real drain on the bank balance. For a pre-revenue startup the two are identical, because there is nothing to subtract. Once a company earns revenue, net burn falls below gross burn, and the gap between them is exactly the revenue. That gap tells a story — a company can carry a high gross burn yet a modest net burn if revenue is strong, which is a very different risk profile from a company whose gross and net burn are nearly the same.

Which figure you should watch depends on the question. Gross burn shows the raw cost of keeping the lights on and is useful for judging how lean the operation is and how much a hiring freeze or spend cut could save. Net burn shows how fast reserves are actually depleting and is the honest input to runway. A founder who reports only gross burn can make the situation look scarier than it is by ignoring revenue; one who reports only net burn can hide a bloated cost base behind strong sales. The disciplined practice is to track both and to name which you mean, because "burn" spoken loosely invites exactly the confusion that misstates how much time the company really has.

Net burn — monthly cash outflow minus revenue — is the true cash drain a startup absorbs, and dividing current cash by net burn gives runway.

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