Gross versus net burn
Gross burn is total monthly spend; net burn is spend minus revenue. Net burn is what matters for runway — a company spending 200k while earning 150k burns 50k a month, not 200k.
Runway is the number that runs out
Runway = cash ÷ net burn. At 320,000 cash and 50,000 monthly burn, you have 6.4 months. Most founders should start raising when runway drops below 9–12 months, because a round takes 4–6 months and the terms worsen as the number shrinks.
Reading burn honestly
- Three-month averages smooth one-off payments
- Exclude financing inflows — they are not operating cash flow
- Watch the trend: burn growing faster than revenue is the classic failure pattern
- Model the effect of one big hire: it compounds monthly
What to cut first
Usually the newest initiatives, not the oldest: they have the least evidence of return. Protect the revenue-generating core and the people who run it.
Frequently Asked Questions
What is a good burn rate?
There is no absolute — it only means something relative to runway and growth rate.
Does revenue reduce burn?
Net burn yes; gross burn no.
When should I raise?
At 9–12 months of runway, before you are forced to.
Assumptions & disclaimer
Results are estimates for planning. Fee schedules, tax brackets and deduction limits change; confirm current figures with the marketplace, the IRS or a qualified accountant before making decisions. Nothing here is financial, tax or legal advice.
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