How to Calculate Burn Rate

• The two burn rates
• Step 1: Pull cash, not GAAP, numbers
• Step 2: Calculate gross burn
• Step 3: Subtract cash revenue to get net burn
• Step 4: Smooth volatility with a trailing average
• Step 5: Calculate runway
• Step 6: Project forward, do not extrapolate
• Step 7: Decide what to cut, raise, or accept
• Common mistakes to avoid
• What to do next

Burn rate is the amount of cash your company spends each month beyond what it brings in. To calculate it, take cash spent minus cash received during a month, or for net burn, subtract revenue collected from total operating expenses. Runway is the cash you have on hand divided by net burn, expressed in months.

Burn and runway are the two numbers every venture-backed founder needs on their dashboard. Lenders, investors, and your own board will ask for both. This guide shows how to calculate each correctly, the difference between gross and net burn, and the moves that quietly shorten runway when you are not looking.

The two burn rates

There are two burn numbers that matter.

Gross burn = Total cash operating expenses per month

Net burn = Total cash operating expenses - cash revenue collected per month

Gross burn shows what you spend regardless of revenue. Net burn shows the rate at which your bank balance actually shrinks. Investors usually quote net burn because that is what consumes runway.

Use the Burn Rate & Runway Calculator for a quick answer, then read on for the calculation discipline that keeps your numbers honest month over month.

Step 1: Pull cash, not GAAP, numbers

Burn is a cash concept. Use your bank statements and AR aging, not your accrual income statement. A company that recognizes $100k of revenue this month but only collects $30k of it has $30k of cash revenue for burn purposes.

• Use cash collected from customers, not invoiced.
• Use cash paid for expenses, not accrued.
• For payroll, use the actual cash hitting employees and tax authorities this month.
• For deferred revenue contracts billed upfront, recognize cash when it arrives.

If you are running on the accrual basis in QuickBooks or NetSuite, run a cash basis report alongside it. The two will differ, especially in months with annual prepayments or large vendor invoices.

Step 2: Calculate gross burn

Sum all operating cash outflows for the month:

• Payroll and contractor payments
• Rent and utilities
• Software subscriptions (your own SaaS stack)
• Marketing and advertising spend
• Professional services (legal, accounting)
• Cloud hosting and infrastructure (AWS, GCP, Azure)
• Office expenses and travel

Exclude one-time items that distort the trend: legal fees from a financing round, severance, or asset purchases. These belong in a separate "non-recurring" line for context.

Worked example. A 15-person seed-stage SaaS company in February:

• Payroll and benefits: $185,000
• AWS and SaaS stack: $14,000
• Marketing and ads: $22,000
• Office, legal, accounting: $11,000
• Travel and events: $8,000
• Total gross burn: $240,000

Step 3: Subtract cash revenue to get net burn

Take cash collected from customers during the same month. Continue the example: the company collected $95,000 in cash from customers in February.

Net burn = $240,000 - $95,000 = $145,000

This is the rate at which the bank balance is actually shrinking. If the company started February with $1,200,000 in the bank, it ended February with roughly $1,055,000.

Step 4: Smooth volatility with a trailing average

Single-month burn numbers are noisy. Annual SaaS prepayments arriving in January, a Q4 marketing push, or a delayed customer payment can swing burn by 30% month over month. Use a trailing 3-month average for trend analysis:

Trailing 3-month average net burn = (Net burn month 1 + month 2 + month 3) / 3

Boards usually want both the most recent month's burn and the trailing 3-month average. Reporting only the trailing average can hide a sudden deterioration; reporting only the latest month can spook investors over a one-time blip.

Step 5: Calculate runway

Runway is how long your current cash lasts at the current net burn rate:

Runway (months) = Cash on hand / Monthly net burn

Continuing the example: $1,055,000 / $145,000 per month = 7.3 months of runway.

Most investor and board guidance says you should start fundraising when you have 9-12 months of runway left, because a Series A or B round typically takes 4-6 months from kick-off to wire transfer. At 7.3 months, this company is already late starting.

Step 6: Project forward, do not extrapolate

Runway at current burn is a snapshot. The more useful number is projected runway, which accounts for planned hiring, marketing changes, and revenue ramp. Build a 12-month cash forecast that pulls forward your hiring plan and revenue projection.

This projection shows the company runs out of cash in late September even though the headline runway of 7.3 months suggested it would last until early October. The difference is the hiring plan accelerating burn before revenue catches up. Real runway is 6.5 months, not 7.3.

The number that matters is "month I run out of cash assuming I execute the current plan," not "current cash divided by current burn." The two diverge whenever you are scaling.

Step 7: Decide what to cut, raise, or accept

Runway intelligence is only useful if it leads to action. Three options:

1. Cut burn. Slow hiring, trim marketing spend, renegotiate the office lease. A 20% cut in burn extends runway by 25% (one over 0.8 minus one).
2. Raise capital. Start a fundraise with at least 9 months of runway remaining. Tie the round size to 18-24 months of runway post-close.
3. Accelerate revenue. Push annual prepay pricing to pull cash forward. Tighten collections on outstanding AR. Both buy weeks, not months.

Most companies need a combination. The mistake is choosing none of them and assuming the problem will solve itself when ARR scales.

Common mistakes to avoid

• Confusing GAAP loss with cash burn. A company can be GAAP profitable and still cash burning if revenue is on accrual and collections are slow.
• Using gross burn for runway calculations. You will overstate runway by ignoring incoming cash.
• Ignoring one-time inflows (tax refunds, deposits returned). They flatter the trailing burn number temporarily.
• Forgetting that annual contracts billed upfront produce a one-time cash spike. Smoothing this with a trailing average is fine; reporting only the spike month as your "low burn" number is misleading.
• Including the cash from a recent fundraise in trailing burn calculations. That overstates your operating performance.

What to do next

Once your burn and runway are clean, pair them with your MRR projection to see when revenue would let you reach default-alive status (revenue growth covers expense growth without needing more capital). For most venture-backed SaaS, default-alive arrives somewhere between $5M and $15M ARR depending on burn discipline.