Burn rate
Burn rate is the pace at which a business spends down its cash reserves, usually measured as net cash used per month.
Burn rate measures how quickly a business uses up its available cash, most often expressed as a monthly figure. Gross burn is the total cash you spend in a month on costs like payroll, rent, and supplies. Net burn is that spending minus the cash you bring in, so it reflects how fast your reserves actually shrink. Divide your cash on hand by your monthly net burn and you get runway, the number of months you can keep operating before the cash runs out at the current pace. The term comes up most with startups and growing companies that spend ahead of revenue.
Lenders and investors look at burn rate to judge how urgent your cash needs are and how sustainable the business is. A high burn with short runway signals risk, and an underwriter may worry about whether you can keep up with a new payment. A controlled burn with a clear path to revenue tells a stronger story. If you are seeking financing partly to extend runway, be ready to show how the funds will lengthen the time you have and move the business toward steady cash flow rather than simply deepening the spend.
Common questions
How does my burn rate affect a financing application?
A lender uses burn rate to estimate how much runway you have and whether a new payment is sustainable. A steady, controlled burn with revenue building behind it reads better than a fast burn with little cash left. Showing how the funds extend your runway and support growing cash flow strengthens your case.
What is a healthy burn rate?
There is no single right number, since it depends on your cash reserves and how fast revenue is growing. The more useful figure is runway, your cash on hand divided by monthly net burn. Many businesses aim to keep at least several months of runway so they are never forced to seek funding under pressure.
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